Privatisation of public assets has been in vogue for a number of years, with state governments of both stripes displaying a keen appetite for the balance-sheet injections that asset sales can bring.

However, the privatisation trend has generally not extended to statutory personal injury schemes. When South Australia privatised its compulsory third party (CTP) scheme last year, it was the first such privatisation in 26 years, since New South Wales reformed its CTP scheme.

Given that the nation’s various state-underwritten statutory insurance schemes collect roughly $10 billion a year in premiums, it is perhaps not surprising that insurers have been lobbying to get a seat at the table.

Change in policy

The Federal Government’s Competition Policy Review has been a key forum for this lobbying. Headed by Dr Ian Harper, the review is a broad examination of Australia’s competition laws and policy.

Private vs public

It produced a draft report last year; however, neither the report nor the draft recommendations had much to say about competition in statutory insurance schemes.

Numerous stakeholders in the insurance industry, including NIBA, have nonetheless raised the issue in submissions to the review.

NIBA told the review there is a need for “a reinvigorated national competition policy regime, which holds state and territory governments accountable for any regime that restricts competition without clearly demonstrating that the costs of competition outweigh the benefits”.

Putting a price on it

Late last year, Suncorp commissioned what might be the first large piece of quantitative research into exactly what benefits might be, tasking PricewaterhouseCooper (PwC) with modelling the economic returns of privatising two of Australia’s statutory monopolies.

PwC assessed the potential economic gains to be gleaned by privatising the workers compensation schemes in NSW and SA, and the SA CTP scheme, finding that over a decade it would bring a $3.9 billion economic boost to those states, including $3 billion in NSW alone.

Such privatisation would also deliver $790 million in extra tax revenue and almost 1100 new jobs, along with productivity gains from getting workers back into their jobs more quickly.

Full privatisation of the state’s personal injury schemes could bring an economic boost of up to $12 billion over 10 years.

Extrapolated to the rest of the country, the research indicates full privatisation of the state’s personal injury schemes could bring an economic boost of up to $12 billion over 10 years.

Suncorp Commercial Insurance Statutory Portfolio Executive General Manager Chris McHugh says the advent of the National Injury Insurance Scheme means now is the perfect opportunity to transform the sector.

“It is difficult to justify maintaining state-owned monopolies when the private sector can deliver better outcomes for customers, injured people and the economy,” he says. “The appropriate role for government in today’s personal injury insurance schemes is to be an independent regulator of the private sector, allowing a competitive market to increase productivity and maximise value for the community.

NIBA has long heralded the Western Australian approach as an example of the benefits that can be realised in a privatised system in which brokers are given latitude to do what they do best.

Best in the west

More than two-thirds of workers compensation policies in WA are written by brokers, and the state enjoys the lowest claim dispute rate in the country, as well as some of the lowest premiums.

In fact, a 2012 survey found that 97% of WA employers were pleased with the performance of their broker during claims, with 60% rating their performance as excellent.

Statutory schemes comparison

Full privatisation of the state’s personal injury schemes could bring an economic boost of up to $12 billion over 10 years.

NIBA CEO Dallas Booth says the WA system works so well because of the presence of brokers.

“They assist clients with an understanding of the risk of workplace injury and disease, and steps that can and should be taken to manage those risks,” he says. “They seek cost effective insurance cover for their clients from the insurance market, and they play an increasingly active role in helping the client employer and the relevant insurance company assess and manage claims and care for the needs of the injured worker.

“The scheme in Western Australia is a clear and effective model for a competitive workers compensation scheme in the rest of Australia.”

Being prudent

Insurance Council of Australia CEO Robert Whelan told the Harper Review that competition in statutory insurance schemes also leads to better protection for both policyholders and third-party claimants.

“Private sector insurers are subject to the detailed prudential requirements under the Insurance Act 1973, and prudential oversight by APRA, leading to risk pricing that fully funds longer tail liabilities,” he says.

In fact, poor financial sustainability was a key reason for the SA Government’s decision to privatise its workers compensation scheme. In 2013, WorkCover had unfunded liabilities of at least $1.4 billion.

“Competitive underwriting between private sector insurers enables governments to de-risk balance sheets, and to concentrate on the role of regulator of insurers licensed to operate in a scheme,” Whelan says.“Competitive underwriting between private sector insurers removes the pressure on governments to price premiums to meet political objectives. Political pricing of risk can lead to significant under- or over-pricing of risk by government, inefficient cross-subsidies between policyholders, and inter-generational inequities for policyholders.”

The Harper Review is due to hand down its final report and recommendations in March.