Soaring costs footed by the Accident Compensation Corporation (ACC), including ballooning long-term claims, remain unsustainably high and should be cut further, the Treasury advised ministers after reviewing the agency’s most recent annual report.
ACC finished the last fiscal year (24/25) deep in the red, with a deficit of $1.48 billion.
While the figure was a distinct improvement on the expected deficit of $2.14b, the Treasury advised that this was largely for the wrong reasons.
External factors – which include the likes of improved net gains on investments – flattered the bottom line.
However, underlying that, the insurance claims paid by ACC in the year jumped by 13.5% to a total of $8.15b, an increase of nearly $1b over the previous year.
In addition, its total Outstanding Claims Liability (which includes liability for current claimants into the future) climbed from $51.5b to $63.6b in just the last two years.
Last year, in response to the soaring costs, the Government approved levy increases for the behemoth publicly-owned, no fault accident insurance scheme – increased payments for employers, employees and motor vehicle users kicked in on April 1, and will continue to rise through 2027.
ACC is a Crown entity, governed by its own board; the Treasury has a monitoring role, which includes assessing ACC’s performance and reporting on it to ministers. Ministers, in turn, set expectations for ACC and make board appointments.
The Treasury advice, released under the Official Information Act, was the most recent of the agency’s quarterly reports on ACC and was provided to ACC Minister Scott Simpson and Finance Minister Nicola Willis in August.
As “areas of concern relating to scheme sustainability” it highlighted the 13.5% year-on-year increase in claims paid; an 8.7% increase in the number of claimants on long-term compensation payments; and rising elective surgery and “social rehabilitation” costs.
Simpson is currently working on a turnaround plan for the agency, the release of which is expected shortly.
In a statement provided to the Herald, he indicated that a key priority is achieving speedier rehabilitation (in discharge from the scheme) for injured people, which has slowed considerably in recent years.
“The social contract, established under the 1967 Woodhouse Report, promised a Scheme that ensured a ‘fast and efficient return to normal life’ for injured New Zealanders. However, due to poor case management by ACC, this is not always being achieved, with clients stuck on the scheme for longer, with a reduced quality of life.
“Going forward, we need to ensure that ACC are [sic] providing the best possible outcomes for clients. Evidence shows that often this involves returning clients to work and independence earlier…too many clients are languishing on the scheme for far too long,” Simpson said.
Simpson said the Government has no plans to amend ACC’s legislation: the Accident Compensation Act 2001.
The Treasury’s advice shone a particular spotlight on the ACC’s “long-term claims pool”; claimants in this group have received weekly compensation for a year or more.
As of June 30, the number of claimants in this group was 24,549; by comparison, it was 12,653 in 2017.
Last year, the number of ACC claimants in the long-term pool rose by 8.7%, a large increase but an improvement on the 10.5% target.
In its annual report, ACC chief executive Megan Main said the lower growth was achieved through the greater provision of dedicated case management and through rehabilitation; she noted that some 8000 claimants were removed from the pool.
This was an improvement on the previous year but it was nevertheless eclipsed by the volume of claimants who tipped newly into the long-term pool category.
ACC’s recent efforts to reduce the growth in the number of long-term claimants is the subject of some concern.
A recent RNZ report focused on the agency’s attempts to bump more claimants off long-term weekly compensation, and suggested that, in the experience of some claimants, the process was driven by targets and not by the success of rehabilitation.
Despite this, the Treasury’s advice is that much more is needed.
Growth of the pool of 8.7% remains “too high for the scheme to be sustainable. To become sustainable, the significant expansion in recent years will first need to be reversed. There is a significant and growing cohort of clients in the Long-Term Claims Pool (LTCP) that have low-complexity, non-serious injuries”, the agency told ministers.
The view is in keeping with ACC’s own targets for growth in long-term claims in the coming two years; it aims to limit growth to 6.6% in the current financial year and to 3.8% in 26/27.
A recent ACC financial condition report suggested that a sustainable long-term growth rate for the LTCP is likely between 3-4%.
To actually reduce the size of the long-term pool, rather than just to limit growth, the Treasury advised a need for “focused effort in increasing exits” from the quickly rising cohort of claimants in the pool receiving weekly compensation for two to seven years.
ACC met eight out of its 11 core service agreement targets in the last financial year.
However, the Treasury warned ministers to view this achievement “in the context of the significant softening around the level of ambition for a number of these targets between the 23/24 and 24/25 service agreement [the service agreement is between ACC and the ACC Minister]”.
As an example, it noted that the “average weekly compensation days paid” target was lifted from 66.8 to 73.5 days.
The agency also focused on elective surgeries and “social rehabilitation”, both of which are rising elements of ACC’s Outstanding Claims Liability (OCL).
The Treasury described elective surgery, accounting for an increase of $648m in claims liability recorded in the financial year, as “an emerging risk”, driven by factors including a higher number of older people (over age 55) receiving surgery, and a higher number of surgeries “for potentially degenerative conditions”.
The advice noted that ACC is working to “address the growth” through measures including using new tools to decide whether these surgeries are required to be covered under the Accident Compensation Act 2001 – specifically whether they are “necessary and appropriate”.
It also flagged social rehabilitation costs, accounting for an increase of $628m in claims liability in the year.
The rising costs covered both capital costs (such as for housing modifications) and costs for care, but the Treasury flagged a “concerning increase” in the costs relating to capital that could not be explained easily.
It noted that PwC has been commissioned to conduct a “deep dive” into the costs.
The Treasury also pointed to so-called sensitive claims, related to sexual abuse, as a source of cost inflation. A landmark 2023 court ruling forced ACC to make a $3.6b provision for increased liability for these claims, and in the last financial year, the agency added a further $591m to that provision.
The Treasury said only $61m of this rising expense could be classified as “influenceable strain” (meaning that, in large measure, greater management and oversight of cases by ACC would not reduce the cost).
It also noted: “the actuaries have also called out sensitive claims as an area of further risk to the OCL (Outstanding Claims Liability).
Labour’s spokeswoman for ACC, Camilla Belich, warned that the Government’s own policies are undermining ACC’s ability to return New Zealanders to work.
She pointed to cost-cutting at ACC, which included scaled-back funding for the sexual violence prevention programme “Hikitia”, and outsourcing to third party providers which she said could be more cheaply provided by the public sector.
Belich also noted that ACC claimants frequently need to move to different jobs to return to work after injury: “In order for people to be able to do that we need a healthy job market and good jobs for New Zealanders…but this is a Government that came into office and stopped big infrastructure projects, and laid off public servants; they’re destroying good jobs.”
She also expressed misgivings about ACC’s calculated liabilities which fall in the future: “We think that those settings are very conservative…obviously we would work with Treasury when in office but we do think that some of those calculations are done on very conservative assumptions, and we don’t necessarily agree that they reflect the overall risk.”