Experience Rating – ACC. Are you in shape?

Experience Rating – ACC. Are you in shape?

 

Experience rating of employer ACC levies is to be introduced. It’s scheduled for 1 April and it’s not optional. You stand to gain levy discounts for a good claims record – or take an extra loading for a worse than average claims record.


How much?

That depends on the size of your levy, but it will be either + or – 10% or + or – 50%. So if your levy is normally $20,000, you could pay as much as $30,000 or as little as $10,000. That’s a $20,000 lost opportunity or a $20,000 incentive, depending on how you look at it.

The following information is condensed out of ACC discussion documents, but it will be pretty close to the final formula:

Why Experience Rating?

The National Government wants levies to recognise individual good performances. Instead of the current broad industry groupings, where some employers are subsidising others with poor records, now, the stated intention is:

  • Provide financial incentives to have a good claims record.
  • Encourage good return to work programmes.
  • Make levies fairer.

Experience rating will be compulsory except for employers paying their own claims under the Partnership Programme. This would appear to mean that it’s on top of other incentive schemes such as WSMP and WSD.
Studies of experience rating schemes overseas suggest:

  • 8 – 15% claim reductions are possible overall.
  • There needs to be a strong link with injury prevention and management.
  • Employers generally take action to reduce claims costs when the financial impacts are high and discounts received within 3 years.
  • There are, however, risks associated with under reporting, misreporting, hurried rehabilitation and a bias against employing people with previous claims records.

 

How will it work?

  • experience rating refundIndustrial Risk Groups will be increased from the current 117 to 143 to allow greater differentiation of types.
  • The rating will only apply to the current portion of the levy, (i.e. not including the residual portion).
  • Employers with a current levy < $10,000 will receive either a 10% discount, a 10% loading or no change.
  • Employers paying > $10,000 current levy will receive anything from 50% discount to 50% loading.
  • The chosen measurements will be:
    # of weekly compensation claims paid and days paid (earnings related compensation claims).
    # of claims with a medical spend over a threshold.
  • Discounts for a “levy application year” will be calculated on a 3.5 year “claims activity period” ending September in the preceding Levy Year. (e.g. for 2011 – 2012, the “claims activity period” will be 01/04/07 to 30/09/10

ACC projections indicate that the general application of experience rating will tend towards net discounts, rather than a balanced result. This will be funded by approximately 2-3 cents levy increase per $100 of leviable earnings.

 

What can you do to plan for this?

Quite simply, don’t sit back and wait, particularly if you are in a competitive sector (and who isn’t)? ACC are expecting slightly more than 50% of employers to gain discounts. Those are the people who have been subsidising the poor performers in their grouping. But now, these employers will gain a competitive advantage by reducing their ACC costs. Costs for poor performers will increase. There is an additive effect here, as the gap in costs between the top and bottom performers slides apart. In short, you could end up paying double the ACC levy of your closest competitors if you fall in the larger employer category. This is the reality of experience rating.

The mechanics of experience rating are mathematically quite complex, but your first step might be to find out roughly where you stand in terms of claims during the last 3.5 years to September 2010. Are you average? Better than average? Worse? Your ACC Account Manager ought to be able to give an indication at least, because they have been tracking employer claims records for years. That will give you a start point. If you are in bad shape, there’s nothing you can do about 2011/12, but the quicker you can start bringing the claims and costs down, the quicker you will have an impact on future ratings.

Keeping control of claims requires a double pronged approach of injury prevention and injury management.

 

Injury prevention:

If you don’t have a safety management system, getting one would be a start. If you have one, is it working for you? It’s an unfortunate fact that many safety systems are window dressing for the purposes of:

  • Passing audits.
  • Placating corporate offices and boards.
  • Giving the illusion of compliance.
  • Satisfying contractual and tendering requirements.

The time has now arrived to put those safety systems to good use, because the proof is now firmly in the pudding.

So what can you do?

Here are five quick and effective methods to focus effort where it will get the biggest result:

  1. Put some time into identifying good leaders. For all we know, it might now be the CFO who sharpens everyone’s focus, but get some authority and impetus behind the safety programme. Plan what you want to achieve and review progress regularly.
  2. Set realistic and measurable safety objectives. Don’t restrict this to reduction of Lost Time Injuries, which are so beloved of many organisations. We all know that’s a game and it’s not an indicator that coincides all that well with ACC’s proposed measurements.
  3. Include objectives for things like issues fixed, training completions, safety meetings. Consider translating some critical objectives into individual KPIs.
  4. You can’t do safety solely by physical safeguards and engineering, so put time also into setting standards. Give your line managers and supervisors clear and unequivocal expectations that there are no justifications for unsafe behaviour. If you have a high accident rate, chances are, these people are unclear themselves what is important to you or the company. They need your support.
  5. Make sure employees are openly consulted and become part of the solution. Some of the most negative employees can become your biggest supporters if they feel engaged. Listen during safety meetings and do what employees ask sometimes, as an alternative to talking at them. Your life will get easier as they take on responsibility for themselves.

If you’d like a bit of help to find your way around some of the tricky bits, give us a call, it’s what we do. Just a note, though, our policy is to assist you to do it, not to do it for you, because that just doesn’t work. Call Simon (09) 535 4355 or 0800 000 267.

 

Injury Management:

This covers a whole range of activities, from taking procedural steps to increase the likelihood that a claim is work related and properly certified. Maintain contact with your injured employees, liaising with your ACC Case Manager. Make alternative work available. Assist and cooperate with rehabilitation and generally encourage early return to work.

We don’t consider ourselves experts in claims management but ACC sure as heck is. Despite stories we hear about privacy rules being quoted as a reason not to talk to you, you have every right to engage with your Case Manager. If you do it the right way, you can make it work. The Case Manager isn’t going to hand over the details and management of the case to you. But if they know you are genuinely open to providing rehabilitation opportunities, they ought to be talking to you. Remember, they are dealing with doctors and specialists and therapists and the case may have factors that you don’t know about. But if you genuinely feel they are not cooperating, politely take the issue higher.

 

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