Twist in Fletcher recipe to manage workplace risk

By Richard Braddell

WELLINGTON - For many, mostly large, employers, the privatisation of workplace insurance has been a great opportunity to chop costs.

But employers satisfied simply with lower premiums are missing the point, says the head of Fletcher Challenge's risk management and insurance, Ian Maynard.

While it's a safe bet that most of its corporate peers wanted their cake in the form of the cheapest deal their brokers could wangle, Fletcher Challenge wants not just to eat the cake, but also to write the recipe and bake it as well.

Like other employers, Fletcher Challenge will still pay premiums to a registered insurer, in its case to @Work, the Crown company competing with the private sector. But the twist in its approach to workers' compensation is that, just as quickly, it will get the money back in a payment to its own in-house reinsurance company.

For an industrial giant like Fletcher Challenge, getting control of accident insurance is no small issue since, in spite of its best efforts, workplace accidents will happen.

Fletcher Challenge does indeed expect to save money - about $30 million over five years on a central scenario, while an optimistic one, which it thinks it can achieve, would produce savings between $40 million and $50 million.

But to Mr Maynard, lower premiums are just the tip of the iceberg when the new environment enables an employer to capture a range of less measurable benefits in terms of faster returns to work, greater trust between company and staff, higher morale and team spirit.

According to Mr Maynard, those are benefits already starting to be captured in operations that currently participate in the ACC accredited employer schemes through which some firms self insure and manage injuries during the first 12 months of their duration.

"The best example of that has been within Tasman Pulp and Paper. Look at what that unit has achieved - and in the past that's been in collaboration with ACC - in getting an on-site claims manager, setting up its own medical facilities, employing its own internal case managers, simply because we had the ability to do that as an accredited employer."

Fletcher Challenge's deal with @Work is a natural extension of the accredited employers' scheme. And in a political environment in which Labour has promised to repeal the privatisation of workplace insurance, it is helpful that it would be simple to cancel the @Work arrangement and revert to an accredited scheme structure favoured by unions.

But Fletcher Challenge had other reasons for going with @Work. Mr Maynard has high praise for the state entity which is able to undertake the administration involved cheaper than FCL itself and which demonstrated a flexibility which he said was not present in its private sector counterparts.

In fact, Mr Maynard is scathing of the private sector companies. "To be honest, none of them could have given a damn about how we manage the injuries. No one cared, they just wanted to grab some of that premium. There was no interest in what was good for the employee or the employer in terms of an injury outcome," he said.

Fletcher Challenge's transition to the new environment was made all the easier by a decision in 1996 that the global group would self insure all losses, other than "catastrophic" losses over $US50 million for paper and forests and $US25 million for building divisions.

The result was that FCL already had its own offshore captive insurance company ready to take on workers' compensation.

But Mr Maynard said the present environment provided the opportunity to take the savings much further than just capturing workplace accident savings. With estimates that the indirect costs of internal administration, training and replacement staff are three to four times the total direct costs associated with a workplace injury, there is strong incentive to manage employee downtime, whether it is workplace related or not.

That gives the employer a vested interest in the health and safety of workers way beyond that presently contemplated by ACC or by private sector insurers. Capture those by getting employees back to work whether the reason is workplace related or not, and FCL's anticipated $50 million upper limit on savings could be easily exceeded.

However, Mr Maynard says he despairs of unions who cannot see beyond the accredited employer scheme as the ultimate expression of workplace injury management, and of employers who have simply opted for traditional insurance.

"I've found it a real disappointment that more companies haven't looked below the surface and looked at what's available with the new legislation. The risk of a poor uptake or only a handful of companies using it as an opportunity means the greater the likelihood of it being reversed if we have a change of government."