1. PWC Report Alan Clayton Bracton Consulting Services Pty Ltd ACC Futures Seminar Wellington 1 September 2008

2. ACC Futures Seminar Wellington, 1 September 2008 What this presentation is about t PWC Report – background and significance t Value of ACC scheme –economic and social t ACC and comparator schemes t Comparison of work injury schemes t Conclusions on delivery models t Areas for improvement

3. ACC Futures Seminar Wellington, 1 September 2008 PWC Report - Background t ACC Board initiated a wide ranging evidence-based research project addressing 3 main questions –using the Woodhouse principles as a framework for evaluation, what value has the scheme delivered to NZ in economic and social terms? –what are the key issues that, over the next five to ten years, will impact on the level of return? –how can the Woodhouse principles be best implemented in order to maximise this return in light of those issues? t 28 detailed research and evaluation questions posed t Responses to a request for proposal submitted by six bodies –extensive evaluation process t September 2007 PricewaterhouseCoopers Australia appointed t Report delivered in March 2008

4. ACC Futures Seminar Wellington, 1 September 2008 PWC Report - Significance t Rare comprehensive stocktake –almost stands alone in international studies in terms of comprehensiveness, methodological rigour and attempt to capture intangible elements t Provides a benchmark for ongoing policy analysis and operational development

5. ACC Futures Seminar Wellington, 1 September 2008 Value Added by the ACC Scheme t Economic value Improved workforce participation Legal cost savings Improved health outcomes Promotion of healthy lifestyle and reduced sporting participation costs t Social value Greatly increased equity in the distribution of resources Improved social inclusion and cohesion Improved quality of life Partial safeguard against poverty Support of volunteer-related activities

6. ACC Futures Seminar Wellington, 1 September 2008 Economic returns of the ACC scheme t 1. Improved workplace participation

7. ACC Futures Seminar Wellington, 1 September 2008 Economic returns of the ACC scheme t 2. Legal cost savings –Pre ACC – legal and insurance costs about 40% of total –Later studies confirm this ratio –Australian workers compensation schemes have legal costs as % of total costs ranging from 2% to 22% Cf ACC – legal costs 0.6% of total compensation expenditure –Recent Australian evidence shows that legal costs borne by claimants has increased significantly –Much lower level of disputation in ACC than non-ACC schemes Single scheme with common entitlements Broad coverage

8. ACC Futures Seminar Wellington, 1 September 2008 Economic returns of the ACC scheme t 3. Improved health outcomes –Impact of periodic payments versus lump sums –Rapid benefit payments –Impact of removal of fault Treatment injury versus medical malpractice Benefits of non-adversarial systems for long-term outcomes

9. ACC Futures Seminar Wellington, 1 September 2008 Economic returns of the ACC scheme t 4. Promotion of a healthy lifestyle and reduced sporting participation costs –Removal of barriers to sporting and leisure activities compared to other schemes New Zealand has one of the lowest rates of physical activity world-wide –Support for tourism industry Tourism –directly $18.6 billion or 8.9% of total GDP and indirectly another $5.9 billion.

10. ACC Futures Seminar Wellington, 1 September 2008 Social returns of the ACC scheme t 1. Greatly improved equity in the distribution of resources –In the absence of ACC only c 30% of current ACC claimants likely to receive benefits beyond public health and social welfare –Lower socio-economic and other disadvantaged groups fare disproportionately badly under non- ACC schemes –Distributive injustice under tort schemes

11. ACC Futures Seminar Wellington, 1 September 2008 Social returns of the ACC scheme t 2. Improved social inclusion and cohesion –Levels of trust

12. ACC Futures Seminar Wellington, 1 September 2008 Social returns of the ACC scheme t 2. Improved social inclusion and cohesion – Inequality measures within society

13. ACC Futures Seminar Wellington, 1 September 2008 Social returns of the ACC scheme t 3. Improved quality of life –ACC scheme contributes to both objective and subjective determinants of quality of life t 4. Partial safeguard against poverty –positive impact of ACC on poverty alleviation t 5. Support of volunteer related activities –removal of liability insurance burden that exists in most other systems

14. ACC Futures Seminar Wellington, 1 September 2008 Messages from the consultation t ACC fosters and facilitates the core values of New Zealand society t These values include the way in which society looks after individual members t ACC support of these values stem from comprehensive coverage, irrespective of fault, and from improved rehabilitation aspects of the ACC scheme

15. ACC Futures Seminar Wellington, 1 September 2008 What are comparator schemes to ACC t Work related injuries –Some Canadian and Australian workers compensation schemes t Motor vehicle injuries –only Quebec and Victoria t Treatment injuries –Scandinavia (partial) t Earners’/ non earners’ accounts –non-work coverage for earners – Switzerland and Netherlands –non-earners – ACC is unique

16. ACC Futures Seminar Wellington, 1 September 2008 Work injuries t Coverage –Fault, no-fault, blended –Who is covered –Travel and breaks –Types of injuries

17. ACC Futures Seminar Wellington, 1 September 2008 Work injuries t Lump sum versus periodic payments

18. ACC Futures Seminar Wellington, 1 September 2008 Work injuries t Levy/ premium rates

19. ACC Futures Seminar Wellington, 1 September 2008 Work injuries t Levy/ premium rates

20. ACC Futures Seminar Wellington, 1 September 2008 Work injuries t Administration costs

21. ACC Futures Seminar Wellington, 1 September 2008 General Differences by type of underwriting t Pure private underwriting schemes: –have relatively short financial “tails” due to the use of lump sum settlements –do not feature vocational rehabilitation as a claimant entitlement, but rather a tool at the option of the employer or insurer t Schemes which feature high levels of periodic payment and provide a wide spectrum of defined vocational rehabilitation entitlements are all delivered through government monopolies

22. ACC Futures Seminar Wellington, 1 September 2008 PWC Conclusions on Delivery Models t 1. ACC under its current implementation structure performs as well or better than most other schemes we can observe around the world t 2. Detailed comparative studies of schemes in North America and Australasia have failed to establish any evidence which would suggest specific changes to ACC’s structural implementation.

23. ACC Futures Seminar Wellington, 1 September 2008 PWC Conclusions on Delivery Models t 3. From our experience in other schemes, we can project that transferring scheme coverage and underwriting to private insurers would require effective regulation of the delivery of the social objectives articulated by the Woodhouse Principles because Full coverage availability would need to be ensured, perhaps through some form of price regulation and/or residual insurance mechanism Regulation would be required to ensure appropriate and sound decision making with respect to the assessment of ongoing claimant eligibility and ongoing entitlement Regulation would be required to ensure the full and proper provision of vocational rehabilitation services Appropriate arrangements would be required for the management of the long-term needs of serious injury claimants

24. ACC Futures Seminar Wellington, 1 September 2008 PWC Conclusions on Delivery Models t 4. Comparative evidence from other jurisdictions suggest that administration cost levels under private underwriting would be likely to rise to some extent. t 5. It is unclear how the private insurance market would cope with coverage of other accounts beyond the work account, as there are no examples of private underwriting for closely comparable injury schemes. t 6. ACC performance across a range of high-level indicators is better than that of Australian schemes.

25. ACC Futures Seminar Wellington, 1 September 2008 PWC Conclusions on Delivery Models t 7. Although contracting out of claims management may potentially offer some conceptual advantages, there is no clear evidence that this approach would improve delivery of the ACC employers account.

26. ACC Futures Seminar Wellington, 1 September 2008 PWC Conclusions on Employers Account t 1. ACC under its current structure performs comparatively well in terms of overall cost, administrative cost and return to work measures, with relatively high benefit levels t 2. Comparisons elsewhere indicate that privately underwritten workers compensation schemes as a group have higher levels of administrative cost on average than government monopoly schemes, likely driven by the need to cover profit margins and marketing expenses. The especially long financial tail of the ACC would be expected to further increase any required level of private underwriting profit margins.

27. ACC Futures Seminar Wellington, 1 September 2008 PWC Conclusions on Employers Account t 3. Comparisons elsewhere fail to establish any systematic difference in remaining overall scheme cost levels between government monopoly and private underwriting schemes. t 4. Workers compensation schemes which are closely comparable to ACC are all delivered through government monopolies, whereas privately underwritten schemes generally have a stronger focus on lump sum financial settlements. t 5. A change to private underwriting of the ACC employers account would require significant operational regulation in order to ensure delivery against the Woodhouse Principles.

28. ACC Futures Seminar Wellington, 1 September 2008 PWC Conclusions on Employers Account t 6. These observations lead us to form a moderately strong view that a government monopoly is the best observable mechanism for implementing the ACC employers account. However, although government underwriting seems the best fit based on available information, the scheme’s own privatisation experience in 1999 shows private underwriting to be at least mechanically viable, subject to sound regulation designed around the social objectives of the Woodhouse Principles.

29. ACC Futures Seminar Wellington, 1 September 2008 Areas for improvement t Need for a major structural change in the approach to safety and prevention t Rehabilitation strategy and case management t Development opportunities for claimants with permanent partial incapacity t Management of serious injury t Financing of GP services t Experience rating t Monitoring and evaluation