09/85208

Executive summary

Experience rating is the adjustment of an employer's premium based on the employer's historic claims experience. Employers with a worse than average claims record are required to pay a higher premium (a loading) while employers with better than average claims records receive a discount.

Between 1972 and 2000, legislation allowed ACC to apply loadings and discounts based on the experience of an employer, but that this was only applied from 1992 until 2000.

Since 1972 there has been targeted risk pooling, with employers in the same, or related, industries paying levies or premiums based on the claims of that industry.

Experience rating ranks as a top concern for individual employers, employer groups and associated stakeholders:

• Business New Zealand believes that experience rating provides incentives to minimise accidents and associated costs.
• NZCTU do not support experience rating in the belief that it does not align with the Woodhouse principle of community responsibility. CTU also considers experience rating to provide incentives to suppress claims and endanger employees through rushed rehabilitation.

Evidence is mixed over the effects of experience rating. Recent research into the Canadian workers compensation scheme indicated that experience rating has had a positive effect on reported accident rates and lowered the incidence of workplace fatalities. Many researchers, however, believe there maybe other causes for declining overall injury rates when experience rating is introduced.

Due to the mixed conclusions reached by international studies on the effects of experience rating, the uncertainty over compliance costs and the plethora of options available for risk sharing, the Department considers that more policy work should be undertaken prior to the implementation of legislation.

ACC anticipates that a timeframe of 18 months to two years is necessary to develop and implement a new pricing framework to incorporate a risk sharing model (including experience rating).

The Department has reviewed the changes required to the IPRC legislation and considers that it would require more than a simple change to legislation allowing Regulations to be made under the Act.

Recommended actions

1. Note that between 1972 and 2000, legislation allowed ACC to apply loadings and discounts based on the experience of an employer, but that this was only applied from 1992 until 2000.
2. Note that since 1972 there has been targeted risk pooling, with employers in the same, or related, industries paying levies or premiums based on the claims of that industry.
3. Note that the Accredited Employer's Programme provides similar benefits to experience rating (as well as a number of other benefits) for large employers.
4. Note that due to the mixed conclusions reached by international studies on the effects of experience rating, the uncertainty over compliance costs and the possible options available for risk sharing, the Department considers that more policy work should be undertaken prior to the implementation of legislation.
5. Note that ACC anticipates that a timeframe of 18 months to two years is necessary to develop and implement a new pricing framework to incorporate a risk sharing model (including experience rating).
6. Note that the Department has reviewed the changes required to the IPRC legislation and considers that it would require more than a simple change to legislation allowing Regulations to be made under the Act.

Paul Barker
Group Manager, Workplace Policy
for Secretary of Labour

Hon Dr Nick Smith
Minister for ACC

---