ACC levy rises intended to boost reserves

The ACC board says levy increases will ensure future costs of injuries are adequately budgeted for.

Around 90 per cent of the increases in next year's ACC levies the corporation's board is recommending arise from a more conservative approach to ensuring the scheme is adequately funded.

By contrast expected increases to the cost of the coming year's claims or the overheads of the corporation itself represent only a few cents in the dollar of the increases sought.

Following public consultation the ACC board is recommending a 44 per cent increase in levies for the work account (covering workplace accidents) and a 65 per cent increase in levies for the earners account (covering non-workplace accidents for the employed). These are unchanged from those put out for consultation.

It has, however, reduced the overall proposed increase in the motor vehicle account from 45 per cent to 38 per cent.

The final decision on next year's levies will be made by the Cabinet this month.

The recommended rates are based on the existing legislation, including the requirement for the scheme to be fully funded by 2014.

If legislation now before Parliament passes, which would push back the date for full funding to 2019 and makes various changes to entitlements, the increases would fall to 20 per cent for the work account, 59 per cent of the earners account and 23 per cent for the motor vehicle account.

The consultation documents make clear the overwhelming majority of the levy increases do not relate to a jump in the expected number of claims in the coming year or in the average cost of those claims or the scheme's administrative costs.

Instead it reflects "funding adjustments" - the adoption of what the board considers a more realistic approach to calculating future liabilities and therefore the amount needed to ensure the scheme has reserves adequate to meet future costs of any year's injuries.

"What I found when I joined the board was that they didn't really have a logical or clear articulation of how they should set levies. That's very important for what is in essence a long-tail insurance company," ACC chairman John Judge said.

"When they looked at some of the long-term trends about rehabilitation and the like, they always assumed they could fix problems long before they did. And so, rather than face up to the trends and reflect them in the levies, they made optimistic assumptions that inevitably meant the scheme was going to be underfunded."

The new board has set out a funding policy for each account. "It looks at how fast you should reflect gains in terms of rehabilitation performance or cost savings and broadly takes the view that we should reflect gains when they have happened and take a much harder look at what the true underlying performance is."

In addition, it would take time to make up the $12.8 billion deficit between the scheme's liabilities and assets.

"We have said you can't fix this in under 10 years."

But that did not detract from the underlying merits of the scheme itself.

"It is not an expensive scheme. The underlying idea of having a no fault scheme where you take out the delays in people's compensation and the legal cost of arguing is excellent," Judge said.

"The question I would have is whether the [regularly changing] Government is a good owner of a long-tail insurance scheme."