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By Phil Moir - 3rd August 2008

The late Jack Wright MP is credited with being the father of the South Australian workers compensation laws. His ambition was to create a scheme that achieved the delicate balance between the competing interests of employers and injured workers. As a businessman, and one time injured worker, I applaud Jack for delivering Australia’s most balanced piece of workers compensation legislation.

In removing the right of an injured worker to take common law action, thus assuming full responsibility for his or her return to work, or in the most severe cases to the community, the current SA laws provide the highest level of statutory protection for business in the country. In turn, injured workers are provided with benefits commensurate with the rights forgone and accordingly balance is achieved.

So how does a well designed scheme end up becoming a billion dollar noose around the neck of all South Australians?

In 2000 the scheme’s objectives clearly were being met. The WorkCover fund was in a healthy position and achieving its best ever annual return to work rates.

In the early days of the new millennium, the corporation’s management theorised it could save money by offering significantly fewer redemptions, thus ignoring the legislated intent to provide fair compensation to permanently injured workers. The law intended that claims on benefits for two years be ended by way of a lump sum payment (redemption) to remove future liability to the scheme.

The WorkCover Board agreed with the theory and the ‘pilot strategy’ to move away from redemptions was implemented. In 2001 Actuary (John Walsh) factored the projected cost savings into his annual forecast reducing net claims liability by $30m. By mid 2002 however, it had become obvious that something was seriously amiss. The newly-elected Rann Labor Government handed the WorkCover portfolio to Michael ‘Son of Jack’ Wright who promptly replaced the WorkCover Board and its actuary with strategically chosen replacements and ordered an urgent review.

In December that year, new actuary Bruce Watson, reported to the Minister and Board advising that his predecessor’s projections were wrong. He warned that the pilot strategy, far from following the theory, was creating the opposite effect. He reported that an increasing number of permanently injured workers were remaining on benefits creating a corresponding blow-out of $337m in the outstanding claims liability in just 24 months.

Despite the warning of its new actuary, and changes of Government and Board, WorkCover persisted with its strategy. Redemptions dropped by 80 percent and WorkCover began to bank an enormous amount of money. In essence WorkCover increased its bank balance by retaining levy funds that were intended to pay redemptions to permanently injured workers. By 2007, WorkCover had accumulated $1.4 billion in cash and investments up from just $50 million in 2000.

In his recent government sanctioned review of the scheme, Alan Clayton stated that prior to 2000, “the strategic implementation of redemptions successfully extinguished significant amounts of tail liability”. The tail liability represents future liability for current claims on the scheme. Unfortunately for South Australia, failure to effectively extinguish the tail liability after 2000 allowed the outstanding claims liability to increase from $277 Million to $2.3 Billion in 2007. With the $2 billion blow-out in claims liability in just seven years exceeding the growth in WorkCover’s bank balance SA was left carrying a $911m unfunded liability.

Over the past seven years, just 179 permanently incapacitated Workers annually, just one half of one percent of all claimants, have had little option but to remain on benefits due to WorkCover’s errant strategy not to redeem. Each of these claims represents an average increase in the outstanding claims liability of one million dollars yet it is accepted that most could be redeemed for just 30 percent of the liability.

The truth is there has been NO deterioration in annual Return to Work rates, just an increasing number of permanently incapacitated workers trapped on benefits by an ideological theory to move away from redemptions ignoring the blunt warning of their own Actuary in 2002 that the strategy had backfired costing SA dearly.

The solution to the WorkCover crisis can be found through compliance with the existing Legislation. Legislation that allows self insured businesses in SA to successfully manage their own scheme under the same law whilst paying 30% lower levies.

By slashing injured Workers rights in an attempt to restore the scheme, we destroy the balance that provided security to both Employers and Injured Workers in this State. Jack Wright would be shattered.

Phil Moir