Labour fired up to retake compo cover

Employers cannot say they were not warned. Labour said that it would renationalise workplace accident insurance, and it is moving swiftly to carry out that promise.

Even so, National and groups such as the Insurance Council, Employers Federation and private insurers are aghast at the speed of tearing down the free-market model and rendering the latter's investment worthless.

The six private insurers and the crown entity @Work together have spent more than $100 million getting established in the market.

Little wonder they squealed so loudly when the Government's intentions to introduce legislation before Christmas and have it passed by April 1 were leaked to former ACC Minister Murray McCully.

New minister Michael Cullen said Labour's plans had been a significant election issue and it had faced daily attacks from employer groups.

"There can be no doubt that we have a mandate for this change, as opposed to the National Party, which did not have a mandate for privatising this scheme."

Labour's reasons for undoing last year's reforms opening workplace insurance to private insurers are underpinned by an ideological belief in a state-owned and run accident compensation scheme.

National, which also intended to privatise the motor vehicle portion of ACC, believed that market forces would produce better outcomes, not only in injury prevention and rehabilitation but in cost.

When National privatised workplace compensation in July, the six private insurers quickly captured 90 per cent of the market. @Work was left with many smaller employers who did not bother with the private insurers.

As predicted, the cost to employers fell dramatically. They paid $458 million to the seven new insurers, including @Work, compared with $631 million paid to ACC in its final year.

Well and good, you might think. But are the claimed savings real? International comparisons, particularly with Australia, suggest that ACC was not so expensive in the first place.

And overseas experience suggests that premium reductions when markets are opened to competition can be short-lived. Once new entrants have sorted out market share, and claims pour in, initial savings can erode.

Meanwhile, there is plenty of evidence of a convergence between what the private sector has charged employers and what ACC might have if it had been allowed to stay in the market.

After taking into account risks that some employers have self-insured, the average premium paid in the new markets is $1.21 per $100 of earnings. That is only slightly less than the $1.33 ACC had recommended to the Government in the past few months in the market, although much lower than the $1.47 finally struck.

ACC chief executive Garry Wilson said last week that the corporation would be able to charge small and medium businesses less than the private insurers and provide more.

"Although ACC prices are set by the Government, I am confident that if ACC re-enters the workers' compensation market it will be able to do so at prices which on average are lower than those currently available," he said.

The president of the Council of Trade Unions, Ross Wilson, said the initial low premiums were unsustainable and it would only be a matter of time before insurance companies wanted to profit from their $100 million investment.

Furthermore, there was no incentive under the present scheme for employers to invest in rehabilitation when workers were injured.

On the other side, Employers Federation chief executive Steve Marshall said there was absolutely no evidence that change was needed or that it would benefit anyone - employer, employee or, frankly, the Government.

"If the new Labour-Alliance Government has found a new way of doing things that provides the same benefits to workers and businesses, then great. But the rationale is not clear as to why this Government wants to reverse last year's positive reforms."

A survey of 66 companies by the Employers and Manufacturers Association (Northern) in August showed the reforms had cut accident insurance premiums more than 30 per cent.