www.mccully.co.nz - 18 July 2008

A Weekly Report from the Keyboard of Murray McCully MP for East Coast Bays

ACC Policy Careful and Considered

The National Party’s Accident Compensation policy released this week charts a careful and considered route to improvement in the scheme. The Labour Party, the trade unions, and assorted left-wing lawyers and self-appointed commentators had prepared their scripts months ago. And, without bothering to read the policy, they just went right ahead anyway, accusing the National Party of destroying civilisation as we know it. But those who do bother to read the policy will find it provides a sensible, constructive way forward given the current shape of the scheme.

The circumstances in 2008 are very different from those of 1998 when the previous National Government introduced competition from private sector insurers in relation to the employers and self-employed accounts. The average employers’ levy had ballooned to $2.61 per $100 of payroll in 1997-98. The introduction of competition required a move to full funding of the lifetime costs of injuries that occurred each year, as well as the introduction of a residual claims levy to ensure the full funding of the lifetime costs of pre-1999 work accidents by 2014. Despite these significant additional costs, the average employer levy in 2000-01 still dropped from $2.61 to $1.56.

The Labour Party and their cronies will argue that dramatically reduced levies were the result of loss-leading by insurance companies – an almost laughable proposition. With the then National Government behind in the polls, and the Labour Party promising to scrap competition, insurers well and truly covered their backsides by building a margin for political risk into levies. And still they dropped dramatically. The simple fact was that over a quarter of a century of state monopoly operation had created a predictably bloated, unresponsive bureaucracy, accustomed to simply loading its increasing costs onto hapless levy-payers.

The years since 2001 have left that humiliation seared into the ACC corporate memory. A high degree of sensitivity has accompanied the setting of levies for the Work Account (employers and self-employed combined). While levies peaked at $1.37 in 2002, they are now nudging downwards again.

The room for private sector insurers to come into the ACC Work Account market and compete on price, as was the case in 1999, is now severely constrained – ACC, no doubt supported by the current Government, has contrived to keep it so. The room for competition from private insurers is now more around quality than price.

The ACC entitlements outlined in the legislation are reasonably basic – as anyone who has had to use the scheme will testify. And, as you would expect of a state monopoly, ACC’s management of the scheme is, at best, fairly ordinary.

To bolster their defences against criticism, and the inevitable threat of competition, ACC resorted to the time-honoured tactic of attempting to purchase a flattering review of their performance from well remunerated consultants. But even the resulting report from PricewaterhouseCoopers could not disguise serious shortcomings. New Zealand’s injury rates are high by international standards, and rehabilitation of seriously injured claimants is well below standards achieved elsewhere. The report recommends significant improvements in respect of both.

But workplace accident statistics will remain high for so long as we retain a system in which good employers, who take the trouble to operate a safe work environment, pay the same premiums as those who do not. And rehabilitation of claimants, especially those with serious injuries, will remain poor, if management of the process continues to lie in the hands of desk-jockeys with no stake in the outcome.

The ACC policy released this week will have disappointed idealogues who want to rush headlong into a reform process. But this is a deeply complex area. The humble Member for East Coast Bays, who was minister responsible for the 1998 changes, is more aware of this than most. While the benefits of introducing competition and choice in relation to the Work Account are proven, and the issues better understood, there would be bigger challenges associated with such changes to the Earners, Non-Earners and Motor Vehicle accounts. Which is why the National Party policy doesn’t go there.

Instead the careful approach announced by John Key this week provides a basis for a considered stock take of the Work Account. Having done that, Mr Key has left room for the introduction of elements of competition and choice where better incentives and penalties through levies bring the prospect of better accident prevention and improved rehabilitation. For potential claimants there can only be winners from that approach.

ENDS

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