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Blood on the Coal – a reminder of what’s at stake

Hon Maryan Street
Minister for ACC

17 June, 2008 Speech
Embargoed until 6pm delivery

Blood on the Coal – a reminder of what’s at stake

ACC Minister Maryan Street launches Hazel Armstrong’s book Blood on the Coal at Education House, Wellington.

I am delighted to be with you today to help launch: Blood on the Coal – the origins and future of NZ’s accident compensation scheme.

In its 34 years ACC really has become part of New Zealand’s social and economic ‘wallpaper’. It’s one of those institutions that are simply there, in the background, doing what they do day after day.

Unfortunately, that means most people have little idea of the scale or importance of the role ACC plays in their lives.

In particular there are a couple of generations, X and Y they’re affectionately known as, who were born after ACC was set up and so have no memory of the rationale for its creation or what went before it.

For other forms of insurance this situation might be acceptable but not ACC. There are a number of reasons why we all need at least a basic understanding of why ACC exists and what it does.

The first is the sheer scale of the injury problem – and its impact on us as a nation. Every single day of the year around 5000 New Zealanders lodge a claim with ACC and the cost of those claims to the country is quite staggering. A couple of examples might help put it in context.

Every year the cost to ACC of road crash claims alone is the same as our total exports to Japan, our third largest market. In other words, every dollar we are making in exports to Japan we are throwing away on this country’s roads.

If you then add on work-related disease and injury, the total economic and social cost reaches a staggering $25 billion a year – roughly 17% of New Zealand’s Gross National Product.

And putting aside the financial costs, the impact on individuals, their families and communities is enormous. Lives can be changed forever, dreams shattered and these impacts ripple through families well beyond the individual who has been injured.

Blood on the Coal details the much more shocking situation many New Zealand families faced before the advent of the ACC Scheme, when they were provided with little or no financial support in the wake of a death or injury, often incurred in the workplace.

The absolute inadequacy of early protections was first brought home to the public by the Brunner mine explosion in 1896, which killed 65 miners and wreaked havoc in the community. The disaster horrifically epitomised the saying which had become common among miners around that time: that “there’s always blood on the coal”. And it fostered significant debate about employer responsibilities.

The failure to properly rehabilitate or care for injured servicemen, or the families of those killed, after the first and second World Wars was to be the second major catalyst which eventually sowed the seed for the ACC Scheme we have today.

By the 1960s discontent with the existing compensation provisions was widespread and many of New Zealand’s leading figures, a number of whom had served in WWII, were empathetic. Sir Owen Woodhouse, the architect of what is still acknowledged as a world-leading accident compensation scheme, was one of those returned servicemen.

His radical proposals for a fair, just, 24-hour, no-fault accident insurance scheme, were largely embraced and enshrined in law by a National government in 1972. Importantly it was to be run by the state, in line with the proposals of Sir Owen, who believed that the motivations driving private insurers – those of minimising liability and maximising profit – would compromise the model.

Blood on the Coal notes Prime Minister Jack Marshall introduced the Accident Compensation Bill’s third reading with the words: “this is a very advanced piece of legislation which I believe we will look back on as a landmark in our social welfare development.” He was “proud that the National Government has taken the lead in introducing legislation which leads the world in this field.”

I said earlier that for a number of reasons it was important the younger generation has at least a basic understanding of the scheme. This year’s election and the National’s Party’s plan to privatise accident insurance coverage makes that an absolute priority.

National doesn’t like to talk about its ACC policy. The public has no idea what it entails, particularly how much of the scheme would be privatised under the misnomer of “creating choice” and in what way – and National wants to keep it that way.

Just weeks out from the last election a leaked memo from the Insurance Council to its members said National was deliberately withholding details of its ACC policy from the public.

The Hollow Men reveals then National chief press secretary Richard Long advised National MPs to say they had no idea what the Insurance Council was talking about.

National largely got away with that cynical charade and New Zealanders were left none the wiser, despite Insurance Council chief executive Chris Ryan telling the media he understood the “detail” included issues such as whether there would be a Crown entity player or not.

The absence of a Crown entity player, essentially a fall-back state insurer for those whose employers fail to protect them or whose business collapses and for those individuals who don’t self-insure, means only one thing. That is that a significant number of New Zealanders would be left with no accident insurance cover.

It is unacceptable that National be permitted to head into another election without spelling out its ACC policy. It is also surprising that John Key has been unable to dissuade the ideological zealots in the National caucus from the privatisation agenda in light of his own positioning.

Let me quote from John Key’s speech to the Inaugural Jenny Shipley lecture in late 2006 where he sought to position himself, in contrast to former leader Don Brash, with more compassionate National leaders including Sid Holland.

“In 1943, Holland gave a speech in the Auckland Town Hall outlining what he believed were the National Party's guiding principles: individual freedom, a competitive economy and the minimum of bureaucratic intervention, regulation and restriction.
“That belief in economic, political and social freedom did not translate into an unfettered free market, where business cowboys would be free to ravage the country and its inhabitants. Nor did it mean an uncaring society where those who weren't able to help themselves were left to suffer.
“Holland was a pragmatic and humanitarian leader. He believed that New Zealanders should be guaranteed security in times of misfortune through a rational and sustainable welfare system. Like Jack Marshall after him, he saw that for individuals to truly be free, they needed to have sufficient material means to ensure that they were free from the constant anxiety of how to support themselves and their families.”

Well John Key might like to reflect again upon what Jack Marshall said when he introduced the ACC scheme and upon the values outlined above which he, as the current National leader, claims to espouse.

Because under a privatisated system individuals and families devastated by accident or injury may well be left unaided and suffering as the result of an uncaring policy and profit-driven insurance companies, whether or not they are Holland’s business cowboys.

The debate over the future shape and direction of the system becomes more critical when we look at the forecasts, which show injury rates are geting much larger and at a frightening rate. ACC figures from recent years show that:

1. Claim numbers are rising steadily. Over the past two years the rate of new claim registrations per 100 people has grown 4.2% a year.
2. Costs per claim are rising faster than inflation.
3. Serious injury costs are rising even more and account for about 56% of scheme costs.
4. Changes in the injury profile, such as falls by older people and noise-induced hearing loss, are a big concern.
5. People within certain groups experience difficulties when accessing the Scheme.
6. Road injuries are a major concern, with casualties rising and hospitalisations still high.

New Zealand will be going through big changes in the next decades. The population is ageing and becoming more diverse. The workforce is becoming more dynamic and mobile, with more participation by older people and women returning to work. The number of single parent, blended and other non-nuclear families is increasing. People are continuing to move away from rural areas to live and work in the cities.

When you compound all of these factors the resulting scenario represents a significant challenge for ACC, policy makers and, of course, levy payers.

In 2007 then the ACC Board decided to commission research that looked out 10 years, to identify international best practice for the implementation of the Woodhouse principles, taking into account the types of demographic and other changes I mentioned.

Just as a reminder, the Woodhouse principles were:

1. Community responsibility
2. Comprehensive entitlement
3. Complete rehabilitation
4. Real compensation
5. Administrative efficiency

The final PriceWaterhouseCoopers report, provided to ACC at the end of March, offered a compelling picture of ACC’s contribution to New Zealand.

It found that “the ACC under its current government monopoly structure performs as well or better than most other structures” worldwide, is often considered to be “best practice” and provides broader coverage than any other scheme in the world.

It said the best mechanism for delivering the employers and motor vehicle accounts in New Zealand is the current government monopoly and there were strong arguments for ensuring serious injuries in all accounts are similarly catered for to optimise rehabilitation.

The report listed a string of negatives which characterise private schemes, as well as a number of favourable comparisons with ACC and other schemes. I will highlight just a few:

• Australia uses a mixture of state and private mechanisms to deliver some similar accident compensation services and the report finds ACC employer contributions are substantially lower at 0.78 per cent of wages, compared to an Australian average of two per cent. New Zealand motor vehicle levies are also significantly lower.

• ACC clients return to work faster than their Australian counterparts and ACC has lower claim management and administration rates.

• In the US, UK and several Australian states the use of lump sum payments, instead of the weekly compensation paid by ACC, generally disadvantages clients. Lump sum payments are typically used by private insurers and often fail to cover the needs of people with long-term or serious injuries in particular.

• Research shows private insurers are often less concerned about the vocational rehabilitation of injured clients – and that a significant group of people can miss out on injury cover altogether under privatised schemes.

• A privatised ACC scheme which tried to honour the Woodhouse principles would have to be heavily regulated to ensure insurers met their obligations and would incur administration costs which were well over 10 per cent higher than ACC’s to ensure profit margins, for example, were met.

The cost to taxpayers of privatising the employers’ account alone in 1999 has been estimated at $45 million and Pricewaterhouse Coopers finds evidence the process was “somewhat chaotic and confusing for some claimants”.

It notes that in terms of general economic theory and experience, structural privatisation has run its course in industrial countries and that while it has delivered benefits in some areas, the evidence of any benefit is thin when it comes to the private delivery of key social services.

Using assessments of what has been successfully privatised and what hasn’t internationally, the report surmises ACC is not a candidate for successful privatisation. It then suggests core public services such as ACC, health and education, where specific social outcomes are considered necessary by society, are commonly judged to be more appropriately delivered by the government.

The researchers did also suggest some changes that might be necessary to ensure the Woodhouse principles remain sustainable. For example, they suggested a change to New Zealand’s injury prevention approach may be necessary if injury rates are to improve and also suggested more vocational development for clients who have a permanent partial incapacity and reduced earning capacity.

The Injury Prevention, Rehabilitation and Compensation Amendment Bill (No. 2) which will have its second reading in Parliament tonight makes progress by extending the scheme’s coverage in a number of areas.

It offers improved:

1. cover for workers who are exposed to a sudden traumatic event at work
2. access to weekly compensation for seasonal and casual workers
3. provisions for work-related gradual process, disease, and infection claims
4. vocational rehabilitation provisions, including for those aged over 65

The Bill will also see the compensation assessments made fairer and simpler; allow earlier access to minimum weekly compensation for some and increase the rate of weekly compensation paid to potential earners.

It is disappointing that National has refused to support the Bill. But it is not surprising because every indication we have been given is that in order to make short-term cost savings, it will put New Zealanders’ entitlements to comprehensive ACC coverage at risk.

As I said earlier, the National Party notion of “providing choice” in ACC is a clear misnomer which should be deconstructed. It conflicts in this instance with providing members of our society the right to be, in John Key’s own words “truly free”.

The only beneficiaries of the so-called choice which would flow from privatisation of ACC are the insurance companies, which will determine who gets covered and how.

They will be handed a $9.5 billion public asset to gamble with, no doubt for the price of backing the National Party’s election campaign, enabling National to slash the numbers of state servants working to provide accident compensation and health care at the same time.

We must understand the past to understand what is at risk and why the experiences of the past helped convince a National government in the first place, that ACC should be state-run.

That is why Blood on the Coal is so important. Not only will it educate the Gen-X and Y groups, but it acts as a reminder to those of us from an older generation of the reasons we changed to the scheme we have today.

I wouldn’t go so far as to call them the ‘bad old days’ but there were aspects of the past that we shouldn’t go back to.

Hazel’s book is both informative and timely. I commend her and her team, Rob Laurs especially, for their work and commend the book to you.

Thank you.


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