robin shaw - self insurers of south australia inc. - challenges facing self-insurers in this rapidly...
DESCRIPTION
Robin Shaw, Manager, Self Insurers of South Australia Inc. presented this at the National Workers' Compensation Summit 2014. The Summit focused on minimising workplace injury claims through establishing a successful safety culture and embrace working towards successful outcomes should a workers compensation claim arise. Find out more at http://www.informa.com.au/nwc14TRANSCRIPT
Challenges facing self insurers in a rapidly evolving environmentRobin Shaw
Manager, Self Insurers of SA
Content
1. What does the change of Federal Govt mean for self insurance?
2. Self insurance v premium – the tough times
3. Economic effects on SI balance sheets
4. Insurance bonds as a means to reduce balance sheet pressure
5. Making the business case for SI
The Federal Govt and self insurance
• 2/12/13 – announced the lifting of the moratorium on private sector SI under Comcare
• No mention of lifting competition test (Hanks)
• Reportedly renewed interest
• Reduce ‘red tape’ – but can only do so in the Federal sphere
• Might be some tweaks for Comcare scheme
About the Comcare option
• For multi-jurisdiction operations – admin simplification may deliver savings
• Cost of claims – is Comcare more expensive than local schemes in some places?
• Examples:
• Comcare v Queensland
• Comcare v WA
• Comcare v SA
• What does this mean long term for the balance sheet?
About the Comcare option
Comparative cost for a notional multi-state SISource – Finity Consulting – general estimate only – will vary case by case
Primary economic influences – discount rate
• Discount rate - self insurance liabilities can be discounted because investment income earned on the provision can be used to pay claims
• Lower discount rate = higher estimated liabilities (all else being equal!)
• Dropped due to GFC & again in 2012
• Increasing since Sept 2013
• Source – Finity Consulting
Economic trends in SI – discount rates
6.8%
5.3%5.0%
5.3%
3.0%3.3%
3.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Dec-13
Source – Finity Consulting
GFCEuropean debt crisis &
reducing Aust interest rates
Primary economic influences – wage index
• Major driver of claim inflation
• Has been much more stable than discount rates
• Source – Finity Consulting
4.5%
3.8%4.0% 4.0% 4.0% 4.0%
3.8%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Dec-13
General outlook
• Discount rate to stabilise for 12 months
• Wage index may decrease slightly
• Outlook for SI liabilities stable short term
• Scheme changes in NSW, Qld may reduce liabilities
• Likely major changes in SA certain to do the same (post March 2014)
• SA changes may make Comcare more expensive again by comparison
Insurance bonds v bank guarantees
• QBE & Assetinsure have developed surety bonds
• Currently discussing with regulators – not generally available as yet
• QBE approved only in SA so far but limited exposure permitted – under discussion
• Amounts of AUD$10M to AUD$50M
• Pricing 1.25% to 2.50% per annum
• Assetinsure approved by Comcare but under APRA review – current status unknown
Insurance bonds v bank guarantees
• Advantages of surety bonds:
• Not having to utilise established credit lines for bonding/guarantee purposes
• Generally no tangible/collateral security required
• Better utilisation of the company balance sheet, enhancing working capital and liquidity
• Fast turnaround issuing bonds
• Contact: Ivan Radovnikovic, Relationship Executive – Surety, QBE Ltd (02) 9375 4795 [email protected]
Making the business case for SI
• SI is at times challenged by Boards concerned with liabilities
• For new applicants – business case needed
• Especially so now that Comcare SI is again available
• Tough economic times makes the case more important and tests its robustness
• Ultimate test – if it was not a good proposition, why do so many do it and defend it?
In a nutshell
Insured by WorkCover Self Insured
$800,000 retained by scheme to fund worse performers
Claim costs $200,000
$750,000 retained by employer
to re-invest in OHS etc
Claim costs $200,000
SI admin overheads @ 25% of claim
costs
Claim costs will reduce over time
Assume $1m PA premium
Or put another way…SA as an example
77.7% 77.2% 76.4% 77.2% 78.5% 80.1% 80.4% 81.0% 81.8% 83.0% 84.9% 86.1%
22.3% 22.8% 23.6% 22.8% 21.5% 19.9% 19.6% 19.0% 18.2% 17.0% 15.1% 13.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
Proportions of total SA workers comp liabilities - WorkCover SA v self insurers
% WorkCover SA liabilities % Self Insured liabilities
% of scheme self insured
Questions?