1.1 These Workers compensation market practice and premium guidelines (Guidelines) commence on 30 June 2021 and will apply until rescinded or replaced. Show
2. DefinitionsThese Guidelines adopt the definitions provided in the Workers Compensation Act 1987, the Workplace Injury Management and Workers Compensation Act 1998 and the Workers Compensation Regulation 2016. The terms used in these Guidelines have the following meanings:
3. Guideline-making powers3.1 These Guidelines are made under section 168 of the 1987 Act.
4. Scope of guidelines4.1 These Guidelines form part of a suite of regulatory instruments available to the Authority when regulating insurer financial and prudential arrangements. As per the 1987 Act and the Regulations, the Guidelines specify:
4.2 These Guidelines apply to all ‘licensed insurers’ as per the 1987 Act, including the Nominal Insurer and specialised insurers. To clarify, the following entities are exempt from the requirements outlined in these Guidelines:
4.3 Unless otherwise stated, these Guidelines apply to premium filings for policies commencing on or from 4:00pm, 30 June 2021 until the Guidelines are rescinded or replaced. 4.4 Section 3 of the 1998 Act states that the purpose of the workers compensation legislation is to establish a workplace injury management and workers compensation system with the following objectives: a) to assist in securing the health, safety and welfare of workers and in particular preventing work-related injury b) to provide:
c) in order to assist injured workers and to promote their return to work as soon as possible\ d) to provide injured workers and their dependants with income support during incapacity, payment for permanent impairment or death, and payment for reasonable treatment and other related expenses e) to be fair, affordable, and financially viable f) to ensure contributions by employers are commensurate with the risks faced, taking into account strategies and performance in injury prevention, injury management, and return to work, and g) to deliver the above objectives efficiently and effectively. 4.5 These Guidelines are aimed at enabling the achievement of these objectives by ensuring insurance policies and premiums are fair, affordable and commensurate with each employer’s risks. 4.6 The Authority will apply these Guidelines in conjunction with relevant legislation, NSW Government policy and other policies and guidelines issued by the Authority as appropriate in the public interest. 4.7 Annexures A, B, C, D and E form part of these Guidelines. 5. Premium principlesLicensed insurer premium filings are required to demonstrate the following principles: 5.1 Principle 1: Premiums are fair and reflective of riskEmployer premiums should be fair and reflective of risk as indicated by the employer’s industry, size and previous claims experience and risk management.In general, fairness can be assessed relative to other similar cohorts of employers. The intention is that all employers engaged in the same or similar industry or business activities should have premium rates that are the same or similar unless influenced by the individual employer’s previous claims experience and its risk management and return to work practices. Insurers should not deliberately introduce cross subsidies between cohorts of employers.Where an employer’s previous claims experience is taken into account, the fairness of its premium will be assessed under Principles 2 and 3.The insurer will need to provide justification that its proposed target average premium rate for a particular cohort fairly reflects the expected claims costs, expenses and suitable profit margin for that cohort. 5.2 Principle 2: Balance between risk pooling and individual employer experienceEmployer premiums should strike a reasonable balance between risk pooling, being the pooling of the experience of all employers, and individual employer experience. For example, an employer’s premiums (in one year or collectively over a few years) should not increase as a result of a claim by more than the value of that claim. For small employers, their primary requirement is insurance cover which provides certainty of protection against the costs of workers compensation claims. When dealing with small employers, insurers are required to apply industry-based rates in accordance with Principle 1, with limited premium adjustments for claims experience, return to work and risk management consistent with Principle 3. As employer size increases, they generally have more influence over the management of their risk and return to work. Insurers can take into account the employer’s own claims experience and risk management practices in addition to industry-based rates increasingly according to the employer’s size. The largest employers can be rated almost entirely on their own claims experience, return to work management and risk management practices. 5.3 Principle 3: Premiums should not be unreasonably volatile or excessiveThis principle builds on the objective that the workers compensation system be fair, affordable, and financially viable. At a system level, employer premiums should not be excessive. In general, they should be reasonably stable from year to year, fairly reflecting individual employer risk, but at the same time not endangering the financial viability of the system. Affordability in this context relates to the premium burden on employers in general, and the subsequent impact on the NSW economy. Protecting employers from excessive and unreasonably volatile premiums is particularly important for small employers. The claims experience of a small employer should not be volatile from period to period or unduly affected by one large claim. A small employer’s individual claims experience should not have an unreasonable impact on their premium. From this perspective, small employer premium stability is consistent with the affordability objective in the legislation and the risk pooling principles articulated in Principle 2. Large employers have a greater capacity to influence their own claims experience. The fairness of the system is more clearly served if the premiums of larger employers are more directly reflective of their claims experience. To the extent that financial viability is not unduly impacted (see Principle 5), premium stability includes consideration of the staged implementation of changes to claims experience, premium loadings, discounts and investment earning rates. This will enable employers to adjust injury risk management and return to work practices to mitigate against expected future premium expenses. 5.4 Principle 4: Incentives for risk management and good claims outcomesIndividual premiums should provide incentives for employers to undertake effective risk management aimed at improving health and safety in the workplace and work opportunities for injured employees. Employers can have their premiums discounted or loaded on the basis of their previous claims experience and the effectiveness of their return to work and risk management practices. Such discounts and loadings, which must also conform to Principles 1, 2 and 3, should be designed (as much as possible) to generate incentives for the employer in the form of premium rebates or reducing future premiums for good or improving performance. At the same time, perverse incentives or incentives that might compromise the objectives of the scheme in relation to the effective treatment and rehabilitation of injured workers must be avoided. 5.5 Principle 5: The premium basis needs to be consistent with the insurer’s capital requirementsInsurers are required to have a capital management plan that recognises the substantial financial and insurance risks inherent in workers compensation portfolios. An insurer’s premium basis needs to be consistent with its capital management plan and current capital position. For the Nominal Insurer, the premium rates as a whole are to be set so as to achieve (as far as can be estimated) an overall target premium pool for the year. The target premium pool is to be linked to the Nominal Insurer’s funding plan which will take account of its overall capital management plan, current capital position and target capital position over three forward years. For each Specialised Insurer, the premium rates as a whole are to be subject to an annual total premium revenue plan that accords with the insurer’s capital management plan. For those insurers authorised by the Australian Prudential Regulation Authority (APRA), the insurer’s capital management plan is to be presented to the Authority and is required to be consistent with capital management plans that the insurer has submitted to APRA. For all licensed insurers, the filing is required to justify the difference between:
6. Policies of insurance requirements for licensed insurers6.1 All policies of insurance must comply with Part 7 (Insurance) of the 1987 Act and the Regulations.6.2 Exemption limit
Note: Fixing the exemption limit for the specified employers at $0 means that those employers will not be exempt employers within the meaning of section 155AA (exempt employers not required to obtain policy of insurance) of the 1987 Act. 6.3 Recovery of excess from employer
6.4 Late payment prescribed rates
6.5 Mine safety contribution6.6 Dust diseases contributionLicensed insurers are required to comply with the Notice published by the Authority and issued pursuant to the Workers Compensation (Dust Diseases) Act 1942, which determines the contributions for insurers under section 6 of that Act. 6.7 Employer definitions
Note: A reference to the term “group” in this section has the same meaning as defined by section 175D of the 1987 Act. 6.8 Wages and motor vehicle allowances
6.9 Treatment of prior businesses6.9.1 For the purpose of these Guidelines, a person is the predecessor of an employer if there is: a) an acquisition of the predecessor’s business - the employer has acquired or otherwise come into the possession of the business of the person, or b) a transfer of all or the majority of the predecessor’s workforce - the employer has, during any policy period, employed workers who at any time constituted all or a majority of the workers employed, during any policy period, and those workers have carried out activities or performed services for the employer that were the same or similar to activities carried out or services performed by those workers for the person. 6.9.2 The claims and basic tariff premium history of an employer’s predecessor must be used in the calculation of the employer’s workers compensation insurance premium. 6.9.3 Sub-clause 6.9.1(a) applies when the business acquired is the whole or main part of the business of the person, or is the whole or main part of a separate and distinct business of the person, and whether or not the business acquired is carried on at the same location. 6.9.4 Sub-clause 6.9.1(b) applies whether or not the activities carried out or services performed for the employer were carried out or performed at the same location as those carried out or performed for the person. 6.9.5 In this clause, business has the same meaning as in Division 2B of Part 7 of the 1987 Act. 6.10 Apprentice incentiveEach licensed insurer must provide details of an apprentice incentive rebate available to employers in the premium filing. As a minimum, the apprentice incentive rebate must be equal to the premium payable on remuneration payments to apprentices by the employer, i.e. apprentice wages x Employer Premium Rate. 6.11 Retro-paid loss policies – calculation of required deposit
6.12 Premium volatilityWhere an insured employer is subject to being experience rated in accordance with section 6.7 of this Guideline, licensed insurers must ensure that the employer’s premium rate does not increase by more than 30 per cent from the previous policy year due to the employer’s own claim experience or due to amendments to an insurer’s premium methodology. Note: This does not apply: a) where the increase in premium rate is as a result of a change in the employer’s wages or a change in the employer’s NSW Workers Compensation Industry Classification (WIC); or b) in exceptional and/or contentious circumstances with the specific written agreement of SIRA. For consideration to be given by SIRA under paragraph 6.12b, licensed insurers must make an application in writing prior to the policy renewal date via . 6.13 Premium instalments6.13.1 As per Part 18, Division 6 of the Workers Compensation Regulation 2016 licensed insurers may offer premium payments by instalment plans. 6.13.2 Each type of instalment plan must be approved by the Authority in the licensed insurer’s premium filing. 7. Premium filing process7.1 A licensed insurer may only charge a premium that is in accordance with their premium filing that has not been rejected by the Authority, except in the case of a provisional premium within section 169(5) of the 1987 Act. 7.2 Frequency of submission of premiums7.2.1 Licensed insurers are to provide their premium filings for the next year beginning 4:00pm, 30 June by no later than 31 March each year. 7.2.2 If a licensed insurer proposes charging premiums other than the premiums previously filed and not rejected by the Authority within a 12-month policy year, the licensed insurer is required to submit a revised premium filing. 7.2.3 A licensed insurer may submit a revised filing to the Authority at any time. 7.3 Premium filing meetings7.3.1 Each licensed insurer is encouraged to meet with the Authority when it submits a premium filing. At this meeting they can present the highlights of the proposed filing, including the context, material changes from the previous filing, and any variations to the proposals indicated at the pre-filing meeting. a) proposed significant changes to premium formula from previous filings b) material differences with the most recent valuation assumptions c) implementation plans based on the effective date of the premium filing, including systems testing and scheduling. 7.3.2 Each licensed insurer is encouraged to meet with the Authority for a pre-filing meeting. The Authority anticipates that licensed insurers could present: 7.4 General principles that SIRA will apply when assessing filings7.4.1 The premium filing is to be submitted on a prospective basis, with all discretionary elements described with well-defined objective triggers and actions. That is, what objective triggers allow an insurer to alter an element of the premium basis and what actions/changes are allowed to that element (e.g. magnitude or boundaries). 7.4.2 Actuarial statement confirming that the proposed rating structure complies with SIRA’s pricing principles, including an assessment of how the rating structure meets each of the five principles. 7.4.3 The premium filing must contain sufficient information so that SIRA can assess that the filing and premium structure is adequate and sustainable. The data and information to be included in the premium filing must:
7.4.4 When considering the level of detail to be included in the premium filings, insurers should include sufficient information within the filing such that an informed reader can draw the required conclusions. This level of detail is comparable to the detail required for a full valuation report subject to Actuaries Institute PS300. 7.4.5 The insurer needs to explain the cross-subsidies within their premium system and why those cross-subsidies are reasonable 7.5 Proposed rating structure7.5.1 The filing must set out in detail the proposed rating structure including the premium formula and all parameters. The derivation of the parameters with supporting evidence must be included. 7.5.2 Where the premium formula contains industry tariff rates then the derivation of these tariff rates for each industry from first principles must be included. 7.6 Experience rated policies7.6.1 Where an insurer utilises an experience rating mechanism, the filing must include:
7.6.2 An insurer must illustrate the impact of an employer’s claims experience on the premium as a result of the experience rating mechanism (that is compare the current premium to the expected premium taking into account the latest claims experience). This must be completed on an individual policy basis and then summarised into bands showing increases/(decreases) of 0 to 10, 11 to 20 per cent, etc. Where the impact of the experience rating loading is not commensurate with the employer’s claims experience the insurer must justify the increase. 7.7 Portfolio profile7.7.1 An outline of the portfolio expected to be written in the premium year including:
7.7.2 Sufficient detail should be included so that SIRA can derive the target premium from the above information (i.e. SIRA should be able to use the rating structure and portfolio profile to derive the dollar amount of premium that is expected to be collected in the policy year). 7.8 Breakeven premium rate7.8.1 The expected breakeven premium rate for the premium year with supporting evidence for the different components of the breakeven premium rate including:
7.8.2 Expenses:
7.8.3 Other loadings:
7.9 Profit margin7.9.1 An insurer must explain the proposed percentage of gross premiums (excluding GST) intended to be retained as profit, before tax, to provide a reasonable rate of return on the capital supporting the business, and the actuarial basis for its calculation. 7.10.1 A three-year projection of the insurer’s capital position including projected balance sheet, APRA required capital (if relevant) and profit and loss statement. The projected profit and loss statement must reflect the proposed premium structure and expected portfolio to be written. 7.10.2 The link between the profit and loss statement and the balance sheet must be clearly demonstrated and explained. 7.10.3 The key assumptions supporting the projections must be stated and the sensitivity of the projections to the key assumptions must be illustrated. 7.10.4 For multi-line insurers, a projection showing the NSW workers compensation portfolio and the total entity level should be included. 7.11 Assessment and rejection of premium filing in accordance with section 169 of the 1987 Act7.11.1 The Authority will assess a licensed insurer’s premium filing (submitted as per Part 7 of these Guidelines) against the following criteria:
7.11.2 Failure to demonstrate compliance with these Guidelines, and in particular, any of the abovementioned criteria may result in a rejection of the premium filing. 7.11.3 The Authority will complete an assessment of a licensed insurer’s premium filing within eight weeks. The Authority may request additional information or amendments to the premium filing in order to ensure that the criteria of the Guidelines are met. Insurers are required to respond to requests for additional information or amendments promptly. 7.11.4 The Authority will advise a licensed insurer in writing once the assessment is complete, advising that the premium filing has not been rejected. 7.11.5 Once the Authority confirms that an assessment is complete and the premium filing has not been rejected, a licensed insurer must apply the rates and rating structure from commencement of the premium filing period without discretion. 7.11.6 Where a premium is rejected, the Authority will provide written notice of its rejection of a premium and the reasons for the rejection. 7.11.7 Where a premium is rejected, the Authority and the licensed insurer will adhere to the process defined in section 169 of the 1987 Act or as prescribed by the Regulation. Market practices8.1 General market practices8.1.1 A licensed insurer must:
8.1.2 Licensed insurers must not engage in conduct that is misleading or deceptive, or likely to mislead or deceive, in relation to an employer or the market. 8.1.3 Where an insured employer has advised their licensed insurer, prior to the policy renewal that they wish to transfer their workers compensation insurance to another licensed insurer, the licensed insurer holding the policy must not hinder or delay the transfer. 8.1.4 A licensed insurer must not make a false or misleading representation about whether an employer can or cannot obtain workers compensation insurance from that insurer or from any other insurer. 8.1.5 A licensed insurer must act towards insured employers and beneficiaries under their workers compensation insurance policy, in respect of any matter arising under or in relation to the workers compensation insurance policy, with the utmost good faith. If reliance by an insurer on a provision of the policy would be to fail to act with the utmost good faith, the insurer may not rely on the provision. 8.1.6 Licensed insurers must notify insured employers of the renewal of their policies no less than four (4) weeks prior to the date of renewal. 8.1.7 Licensed insurers must provide insured employers confirmation of their policies, including all policy documentation, within six (6) weeks of the issuing or renewal of a policy. 8.2 Premium compliance assurance programs8.2.1 Each licensed insurer must maintain a program of premium compliance assurance to ensure that insured employers within their portfolio of insurance are compliant with their premium obligations in accordance with the relevant NSW workers compensation legislation, guidelines and rulings as issued and maintained by the Authority. 8.2.2 Each licensed insurer must report quarterly, to the Authority, all premium compliance assurance activities, findings and outcomes. The Authority may specify, from time to time, the format and reportable items required from each licensed insurer. 8.2.3 Each licensed insurer must provide the Authority with the files, data or any other relevant information in relation to the premium compliance assurance activities, as requested from time to time. 8.3 Regulator premium information requirements8.3.1 When requested by the Authority, each licensed insurer must provide the Authority with employer and policy information that is compliant with the requirements of the Policy technical manual issued by the Authority or as otherwise specified by the Authority. 8.4 Premium information for employers8.4.1 Within each insurer’s portfolio of insurance, the licensed insurer must make available to employers or their representatives, a premium calculator which can be utilised to accurately estimate or reconstruct the premium charged to that employer. 8.4.2 The premium calculator must be accessible by employers at all times where possible. 8.4.3 Upon request, licensed insurers must provide to an employer, or their representative, information used in the calculation of the insurance premiums for that employer within five working days. 8.4,.4 Information to be provided to employers must include all inputs into the calculation such as, but is not limited to:
8.4.5 Licensed insurers must make available the terms and conditions as per Schedule 3 of the Workers Compensation Regulation 2016 of their workers compensation policy to employers and potential employers on a publicly accessible website at all times. 8.5 Employer premium review process8.5.1 Licensed insurers must have a published process in place where an employer may request a review of aspects of their premium determination. The review process as a minimum must:
8.5.2 A licensed insurer’s internal review handling and dispute resolution process must be consistent with Australian/New Zealand Standard AS/NZS 10002:2014 Guidelines for complaint management in organizations. 8.5.3 The determination of a review must set out a detailed explanation of the basis for the decision and the reasons for arriving at that determination. 8.5.4 The licensed insurer must provide the contact details of the Authority to the insured employer so they may seek a further review where they are not satisfied with the outcome of the insurer’s determination. 8.5.5 Insured employers may seek a further review by the Authority within 28 days of the licensed insurer’s determination if a resolution is not reached with the licensed insurer to the satisfaction of the insured employer. The Authority will review whether the employer’s premiums have been written in accordance with the premium filing of that licensed insurer. The licensed insurer must provide the Authority with any information as requested by the Authority in the consideration of the employer’s request for review. 8.5.6 Each licensed insurer must report quarterly, to the Authority, all complaints, reviews and appeals activities, findings and outcomes. The Authority may specify, from time to time, the format and reportable items required from each lcensed insurer. 8.5.7 The Authority may audit a licensed insurer under section 202A of the 1987 Act regarding compliance with the Guidelines where it is considered appropriate. AnnexuresAll annexures are available in pdf version of this document. Annexure A – NSW workers compensation industry classification system Annexure B – Recovery of excess from employer as per s160 of 1987 Act Annexure C – Late payment prescribed rate as per s172(5) of the 1987 Act Annexure D – Motor vehicle and accommodation allowance Annexure E – Review of primary activity guideline |