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ACC Monopoly Won't Deliver Cullen’s Promises - ACT

ACC Monopoly Will Not Deliver Cullen’s Promises

Monday 6th Mar 2000 Ken Shirley Media Release -- Economy

ACT ACC Spokesman Hon Ken Shirley today said ACC will not be able to achieve the 20-30% savings in premium payments from its previous $1.47 average or sustain over time the premium average of $1.16 being promised by the Government.

“To match the competitiveness of the private sector insurers the ACC monopoly premiums should have been less than $1. Even at $1.16 there is no way employers can be promised that their ACC compliance costs won’t rise sharply over time under Dr Cullen’s flawed regime.

“The challenge for Dr Cullen is to disclose his assumptions and explain how his promises are achievable, let alone sustainable.

“There are also undisclosed mistakes in ACC’s statistical base that will add to the costs for employers. The ACC’s 1998 Annual Report notes that only 9.8% of weekly benefit claimants were still claiming after 12 months (page 35). The report also notes on the same page that over half of the cost of claims is in the long term tail after 12 months.

“Conversely the ACC’s 1999 Annual Report (page 40) says that its 12 month continuance rate for the period to June 1998 was actually 16%, not 9.8%.

“This error accounts for an under-estimation of 32% of the total cost of claims. This additional cost would have to be reflected in the premiums. This means that the premium rate prior to privatisation was 30% too low and given the difficulty that ACC is having with its statistics, how can we accept the rates proposed Dr Cullen.

“The reintroduction of the accredited employers programme will compound the problems facing Dr Cullen. Employers with better workplace safety records will be more inclined to leave the risk pool leaving the remainder with a higher average premium cost.

“ACC themselves have told the select Committee that if the top 1000 employers elected to join the Accredited Employers Programme then the standard average employer premiums for the remainder would increase by 10%.

“Other key issues that must be confronted and disclosed by Dr Cullen are:

 the reserves policy for the employers account - what reserving practices are they adopting?

 To what degree have discounts for observed safety management practices been factored into the average premium rate?

 If discounts are not counter-balanced by penalties then the management/operational risk increases.

“It is also noted that the audits provided in the new legislation for employers safety management practices have to be paid from the employers account. Have the cost of audits for 140,000 employers been factored into the premium? How frequently will employers be audited to assess their premium? How many auditors are to be engaged and at what cost? Are these auditing costs in addition to the $1.16 premium?

“ACC have not demonstrated that they truly understand case management and rehabilitation which are the key drivers of sustainable prices. What will ACC do differently? What level of performance are their budgets built around? What will case load ratios be? Will they control costs by reducing service? How can ACC achieve this with an increase of only 20-30 staff to do the work of 7 registered insurers?

“While government is heralding lower premiums now they are also foreshadowing a second ACC bill that will, amongst other things, provide for lump sum compensation and increased administrative tasks. Who is going to pay the difference – the employer or the taxpayer?

“The simplest and preferred way to sustain low ACC premium costs is to reduce the accident rate. ACC’s rather crude experience rating was a significant contributor to bringing the weekly benefit claims down from 2,000 per month to 1,113 per month. The private industry’s more sophisticated structure over the last seven months has been a major contributor to bringing them down to 800 per month.

“The government is scrapping the private industry and experience rating and it is inevitable that claims will head back over the 1,300 per month level.

“The private competitive market has, over the past seven months, delivered major savings and improved workplace safety. Cullen’s hollow promises are no substitute for the evidence in black and white,” said Ken Shirley.


For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at act@parliament.govt.nz.

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