How do claims influence my premium calculation?

If your annualised rateable remuneration exceeds $200,000, then your WorkSafe injury insurance premium will be calculated taking into account your recent claims experience.

For the calculation of 2009/10 premiums claims reported between 1 April 2006 and 31 December 2008 are used to determine your experience.  This period is referred to as the “Claims Reporting Period”.  Claims reported after 31 December 2008 will not be used in your insurance premium calculation for 2009/10.  However, these claims will form part of your experience and consequently affect your insurance premium in the future.

Claim Costs

The cost of claims reported in the Claims Reporting Period is used in the determination of employer performance in the premium calculation. 

Claim costs are payments made in relation to a claim plus an estimate of future costs that are expected to be made.  This includes:

• compensation payments;
• costs and expenses relating to the claim;
• common law or settlement payments; and
• the estimation of outstanding liability for payments, expenses, and costs.

All employers have their claim costs measured in the same way - objectively and consistently - so an employer’s relative performance can be compared to their overall industry.  It is important to note that there is no direct correlation between claims cost dollars and premium dollars.  It is how an employer compares to their peers that is important in determining their performance rate.

Estimating claims costs: statistical case estimates (SCEs)

In 2004/2005 WorkSafe introduced the SCE model to estimate the future cost of each employer’s claims for premium calculation purposes.

WorkSafe uses the SCE model to estimate the lifetime cost of individual claims.  The model uses the scheme’s experience over 20 years to estimate the average cost of a claim, taking into account the known characteristics of the claim.  For example, if a claim is for a stress-related injury and the worker has been off work for three months, the model will provide an estimate of the lifetime cost of the claim based on the lifetime costs incurred for other such stress claims for which workers were initially paid three months of weekly benefits.

A claim’s SCE changes as the claim’s payment profile changes.  The main factor driving estimates is return to work rates, as reflected in weekly benefit payments.  If a worker returns to work and weekly benefits cease, the SCE on the claim reduces.  The longer a worker remains at work, the more the estimate will fall, reflecting the reducing likelihood of the worker requiring further time off work to recover.

SCEs are based on claim characteristics (for example, the type of injury) as well as any information about payments on the claim that is available when the estimate is made.

At the start of a claim, relatively sparse payment information is available and therefore the range of possible outcomes for the claim is very broad.  The worker could return to work after two or three weeks, making the cost of the claim very low, or the worker could be off work for months and possibly never return to their pre injury employment, inflating the cost of the claim.

Given that lack of available information early in the life of a claim, the predictive value of the model for new claims can be low, as indicated by a divergence between claim estimates and claim experience.  As the claim progresses and more information gathered the SCE better reflects the individual claim.

To improve the predictive capability of the SCE model, each estimate provided on a claim has a three month lag or delay.  This means, for example, on 1 December, an estimate provided for a claim reflects the claim’s status on 1 September of that year. This lag, or delay allows time for invoices and requests for weekly income reimbursements to be received.  For example, it might be October before an employer forwards medical certificates and a request for reimbursement for the month of August. If the estimate for a claim on 1 September was made on 2 September (rather than 1 December), then because nothing had been recorded against the month of August it may have a significantly larger estimate than need be.

Recalibration

Estimates are also influenced to a lesser extent by factors outside employers’ control, such as the indexation of workers’ benefits, indexation of medical fees, and recalibration of the SCE model.  or example, the annual indexation of workers’ weekly benefits increases the lifetime estimated cost of claims.

The SCE model is recalibrated twice a year to take into account more recent scheme experience with the cost of claims.  Where the scheme has reduced the cost of claims, the recalibration can lead to a reduction in the estimate on individual claims.  Recalibrations and indexations resulting in an increase in a claim’s SCE do not mean increased premium costs for employers.  An employer’s claims costs, relative to their size, are compared to the claims costs for their entire industry – it is the employer’s relative performance that determines if their premium increases or decreases.

Estimates rely on the timely provision of claim information including medical certificates, requests for reimbursement, return to work plans, etc.  The more information that is provided the more accurate the estimate will be to the individual claim.

The actuarial model used is a particular type of predictive claims model which provides individual estimates of future claim costs arising from existing, open and closed claims.  These estimates are predicted via a statistical model using the individual characteristics of each claim and known experience relative to these characteristics.

Various characteristics affect an estimate

The following characteristics are examples of those that are considered by the SCE model in the determination of an estimate.

Claim experience

• Benefits paid to date
• Length of time on benefits (days compensated)
• Number of separate periods of benefits
• Time since the last payment period (weekly benefits)

Worker

• Age at accident
• Pre-injury earnings
• Occupation
• Gender

Circumstances

• Accident/Injury type
• Impairment (s.98)
• Nature of injury
• Agency of injury
• Body location of injury
• Work capacity
• WIC/Industry
• Report delay

Influencing the characteristics

Employers can influence the estimated future claim costs by ensuring the information the Agent has relating to the claim is up to date.  This means all medical certificates, requests for reimbursement, return to work plans and any other documentation is submitted in a timely manner.

Further, ensuring the injured worker achieves a safe, sustained return to work will see the estimate reduce as the model responds to the diminishing likelihood of continued weekly benefit payments.  It is important to remember that the estimate of claims costs has a three month lag or delay.  This means any change in the claim characteristics, for example a full or partial return to work, will not be evident in any estimate for at least three months.

Rejected, closed and inactive claims

Rejected and closed claims may still have a cost estimate allocated to them.  This is because claims can reopen and workers in some instances have the ability to appeal or question the rejection of their claim.  Claims estimates will only be included in an employer’s premium calculation if compensation has been paid.  A claim is classified as inactive if there has been no activity recorded against it for the past six months.

Employer Performance

WorkSafe provide experience rated employers with a performance rating, referred to as their Employer Performance Rating or “EPR”.  The employer is notified of their EPR on their indicative premium notice (if they have had claims in the last three years) and in the premium notice they receive in early September. 

The EPR is an indication of employer performance relative to the other employers operating within the same industry classification(s).  An employer with an EPR of less than one is performing better than their peers, an employer with an EPR of one is performing at the industry average, and an employer with an EPR of more than one is performing worse than average in their industry.

An employer’s EPR is used in the premium calculation to vary an employer’s premium rate from the industry rate that relates to the industry in which they operate.  An employer with an EPR of less than one will have a premium rate lower than their industry rate and an employer with an EPR of more than one will have a rate higher than the industry rate.

One of the factors governing the impact of claims on an employer’s premium is the size of their business.  The larger your business, as determined by your rateable remuneration, the greater the weight given to your experience or EPR.  

The premium calculation contains a sizing adjustment factor for experience rated employers which governs the impact of an employer’s own experience on the premium they pay.  The aim of the sizing adjustment factor is to maintain the degree of relativity in the impact of claims on premiums paid by smaller employers.