Looming election keeps ACC question ever-uncertain

By RICHARD BRADDELL

WELLINGTON - Four months after the private sector insurers entered the workers' compensation market, the future of ACC is as much in doubt as that other hoary chestnut of public policy, superannuation.

The six private insurers, and the Crown entity, @Work, which together spent more than $100 million getting ready for the market, entered it on July 1 in the full knowledge that Labour had promised it would disband the private market if it formed the next Government, rendering their investment worthless.

Labour has not wavered and with polling suggesting the election outcome is still no more certain than a roll of the dice, it is slim comfort that if a Labour coalition wins with only a narrow margin, the pressure might be on only to delay its proposed reversal of reform rather than abandon it in favour of more pressing policies.

Indeed, ACC is one area where ideological differences between the parties are conspicuous. National, having opened workers' compensation to market forces, has indicated it would do the same for the motor vehicle portion of ACC, and possibly other areas in future. Its likely coalition partner, Act, would do that, and go much further.

National's theory is that market forces will produce better outcomes, both in injury prevention and rehabilitation, as well as in cost.

Certainly, for much of its history, ACC has often failed to distinguish itself, with too much focus on short-term injuries, while its tardiness in managing injuries has too often resulted in permanent disability.

National, and groups like the Insurance Council, are trumpeting savings to employers, and thus to the economy, of $250 million a year from lower premiums due to private competition in workers' compensation.

It is noteworthy that while the past antics of ACC have won little respect in the Labour camp, it would reinstate the state monopoly, although party spokeswoman Ruth Dyson says it has no intention of returning to the "appalling practices of ACC and respective ministers of ACC in the past".

It will be new and different. But how different is not completely clear. One aspect which has little appeal for Fletcher Challenge's group manager of risk and insurance, Ian Maynard, is a proposal to return to premiums based on industry experience rather than actual safety records.

Ms Dyson's view is that even an employer with a good record can suffer a serendipitous accident, thus ruining a good experience rating. But while Labour would make injury prevention the prime responsibility of ACC, Mr Maynard is concerned that a strong incentive for employers to promote workplace safety would be lost.

Nevertheless, Labour's plans to revive and expand the accredited employer scheme, under which major employers are allowed to self insure and manage a large portion of their workplace risk, gets a qualified approval.

Fletcher Challenge, as an accredited employer in the old days, is often cited by unions among others as an example of how the scheme can work to everyone's advantage.

Indeed, under the current regime, Fletcher wasted no time in building on its accredited employer experience to capture millions in savings by self-insuring and managing its risk and injury rehabilitation.

Meanwhile, Labour's approach relies heavily on the way that ACC was originally set up to accomplish. The architect of the ACC scheme 30 years ago, Sir Owen Woodhouse, recently said that the kind of social responsibilities that had been embodied in the legislation risked being swept aside by economic dogma. He argued that promoting safety should be the function of an independent body able to regulate and enforce its regulations and should not be linked to compensation and rehabilitation.

Professor Richard Gaskins, who recently completed a six month stint at Victoria University, says the risk is that the injured will once again fall victim to the lottery of lawsuits.

Meanwhile, the question remains of whether the savings claimed from opening workers' competition are real. International comparisons, particularly with Australia, suggest that ACC was not so expensive in the first place.

And overseas experience would suggest that the premium reductions when markets are opened to competition can be short-lived. Once new entrants have sorted out market share, and claims pour in, there is evidence that the initial savings can erode.

Ms Dyson argues that the savings claimed for the current scheme are not nearly as good as claimed, particularly when factors such as the residual claims levy, and the additional costs of health and safety provisions are taken into account. She suggests that those employers saving 50 per cent on ACC could in reality be breaking even.

But many have not made such large savings. Private insurers have naturally concentrated on larger employers, while many small businesses defaulted to @Work and the self-employed are mostly still with ACC.

And there is another reason for scepticism - incomplete data. The savings touted by privatisation's supporters are based on estimates. For some reason, the regulator has taken an extraordinarily long time producing figures on how the privatised market turned out. Four and a half months on, we are still waiting.