Northern Territory Second Reading Speeches

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WORK HEALTH AMENDMENT BILL 2001

Mr Speaker, I move that the bill be now read a second time.

The purpose of the Work Health Amendment Bill 2001 is to preserve the viability of the Northern Territory workers’ compensation scheme following the collapse of the HIH Insurance Group. The collapse of HIH is having a significant impact across the country. Honourable members will be aware of the consequences of the collapse and its effects on professional insurance, building insurance, third party motor accident insurance and other forms of insurance coverage. Current estimates of the cost of the collapse across Australia in the order of $2.7 to $4bn, although it will be some years before the actual costs can be assessed with certainty.

Honourable members will also be aware that the federal government has announced a Royal Commission into the collapse of HIH and the role of the Commonwealth regulatory authorities -- and their announcement of a $500m rescue package for some of the 1.1 million policy holders hardest hit by HIH’s demise. Unfortunately, the federal government has made it clear that the rescue package will be not available to support state and territory statutory schemes, such as workers’ compensation and compulsory motor accident schemes.

The collapse of HIH has had an impact on the Territory. While the Territory’s Motor Accident Compensation Scheme, administered by the Territory Insurance Office, is unaffected, the collapse has left an unfunded liability in the order of $50m on the Territory’s workers’ compensation scheme. However, it will be some time before the precise liability can be determined.

The legislation currently allows for the funding of the nominal insurer by insurers and self-insurers on a retrospective basis. That is, contributions to the Nominal Insurer Fund are calculated according to the market share of workers’ compensation insurers, based on their respective proportions of the total premium income received in the previous year. However, this funding mechanism was designed to meet expected exigencies. It was not designed to meet the demands on the Nominal Insurer Fund caused by the collapse of a large insurance company active in the Territory’s workers’ compensation market. To illustrate this point, the Nominal Insurer, over a 22 year period from 1979, has assumed liability for approximately 300 claims at a cost of around $2.5m. The HIH collapse has added over 520 claims to the Nominal Insurer’s liability with a cost that could be well in excess of $50m.

If the current funding mechanism as set out in the legislation is used to meet this unexpected liability, it may lead to several undesirable outcomes. First, there is a real possibility that an insurer could find the levy too much to bear and choose not to provide workers’ compensation insurance in the Northern Territory. This would place an increased burden on the insurers remaining - a burden that would be passed on to Territory employers - as well as increasing the burden on the Nominal Insurer.

As well, the present mechanism may lead to an inequitable result as insurers may pass the costs of any levy on to employers in an uneven manner, leading to much higher premiums for some businesses. It is likely that premiums would have to rise in the order of 35% to meet the anticipated demands by the Fund, if the current arrangements were to apply.

To avoid these difficulties and to ensure the viability of the compensation scheme, this amendment is being put forward to provide an alternative and fairer means of covering the unfunded liability. This amendment would allow a levy on employers to be made, which would be collected by the insurers and then paid into the Nominal Insurer Fund. This scheme of arrangements would be similar to that operating in the ACT and Western Australia. As well, Tasmania, which has a very similar Nominal Insurer scheme to that of the Territory, has announced its intention to introduce a levy on employers to meet the HIH liability.

The legislation is deliberately flexible and enables a balance to be struck between the size of the levy and the period over which the liability is recovered. It would also enable a levy to be struck on the basis of, for example, a percentage of wages or as a percentage of the insurance premium payable. There are advantages and disadvantages with either approach. Actuarial and other advice will be obtained before a decision is made as to the nature of the levy to be imposed, the basis for the calculation of the levy, its rate and the period for which is to be payable.

As I have just said, a decision is yet to be made as to the type of levy to be adopted. All avenues are being examined to ensure that the levy will be as manageable as possible and the burden will be spread as broadly as possible. In this regard, the Territory will contribute to the Nominal Insurer even though it has no strict obligation to do so. In any event there will be no levy imposed between now and January 2002, during which time all possible funding options will be explored. However, it is of vital importance that the legislation be amended to provide an alternative funding mechanism as it will send a clear message to insurers that they will not be required to fund the Nominal Insurer’s HIH liability. Thus the potential for exorbitant premium increases in order to fund the Nominal Insurer will be removed.

The government will, in the meantime, ensure that the Nominal Insurer has the necessary funds to meet its claims responsibilities. The government has already advanced $3 million to the Nominal Insurer to cover claims during the first three months since the HIH collapse. I acknowledge that an employer levy would not be welcomed by Territory employers, however, if decided upon, the government is committed to ensuring employers’ interests are protected. We are not about putting undue economic stress on Territory employers and we would make every effort to ensure any levy is affordable and fair to all employers.

In this regard, as I have outlined the government will, as the Territory’s largest employer, contribute its share to any employer levy. Preliminary advice indicates that this would reduce a levy on the private sector by about 30 per cent. The Commonwealth would also be asked to contribute in relation to its employees in the Territory. Options would also be explored to minimise any funding impact on government funded Non Government Organisations.

Members will be aware of my recent statement to the Assembly that the government will seek community comment on the Report of the Working Group on the operation of the Territory’s workers’ compensation scheme. Members will also have noted that it is our intention to then take account of the Working Group’s Report, all comments received on the report, a report into the efficiency of medical intervention in the workers’ compensation scheme and up to date actuarial advice. The government will then be making changes to the scheme to make it more efficient in order to reduce premiums. It is our intention to proceed with these changes prior to the end of the 2001 calendar year thereby providing an environment for premium reductions that may offset any levy that may need to be introduced.

In summary, an employer levy is not a measure that the Territory government wishes to introduce, but it would be irresponsible for us not to make these legislative amendments to ensure the funding option is open to us. We need to preserve the viability of the workers’ compensation scheme and protect the interests of Territory employers. The bill would operate in the following way: the bill would amend the act to provide an alternative funding mechanism for the Nominal Insurer through a levy on employers. . It would enable flexibility in the amount and timing of such a levy as well as providing an option for the levy to be either premium or wages based.

It would also amend the act by enabling the Nominal Insurer, with ministerial consent, to borrow funds from commercial sources. This would enable the Nominal Insurer to source advance funding, if necessary from the reinsurance market. As I said, the government will consider all funding options, but it is important that the levy funding option is now made available. For this reason, I seek the support of the members opposite for this bill to be considered on urgency.

Mr Speaker, I commend the bill.

Debate adjourned.

 

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