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Victorian 2023-24 Premium Changes: A Deeper Dive

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Recent headlines in the workers’ compensation world have all been about the increase in the Average Industry Rate in Victoria (42%). The average premium rate for 2023-24 is 1.8% of the state’s rateable remuneration.

This has been significant news for employers who are now facing steep increases, but the Average Industry Rate only tells part of the story.

This article aims to briefly highlight some of the other changes that will impact employers in the scheme.

Looking beyond the Average Industry Rate

The industry classification rate is based on the safety performance of each industry over the most recent past. However, as the word “average” suggests, there are some Industry Rates that are increasing by more than 42%. Others are increasing by less than 42%.

In some industries, the increase in the industry rate has not been nearly as steep as 42%. That also means that for other industries, the increase in rate has been notably higher than 42%, hurting certain employers to an even greater degree.

Industry Claim Cost Rate

Whilst the Industry Rate has been grabbing the headlines, for large employers, the Industry Claim Cost Rate (ICCR) has just as much of an impact on the final premium.

The ICCR is essentially the measuring stick of a claims to wages ratio by which each employer is judged. The lower the ICCR, the harder it is for an employer to be “better” than their industry.

In mixed news for employers, there have been a lot of changes in ICCR with some increasing and some decreasing (which is bad for employers).

For the unlucky employers, their ICCR has decreased at the same time as their Industry Rate has increased, creating a compounding negative impact on their premium.

Capping

WorkSafe applies a capping to the change in the effective rate to wages that can occur between each policy year to protect the employer. For the last several years, that capping has been 30%, meaning that if your rate to wages was 2.0%, then the absolute maximum your premium could increase to in the following year was 2.6%.

This year, WorkSafe changed the capping to 75%, which means that if your premium rate last year was 2.0%, the maximum it can reach before being capped is now 3.5%.

Given the significant changes in both Industry Rates and Industry Claims Cost Rates, we are seeing an alarmingly high number of employers being capped at 75%, sometimes even if they don’t have any claims costs in their history.

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Size Factor

The size factor is a weighting in the premium formula. In short, the larger the business is, the more the premium can move up or down from the Industry Premium. The constant used in the size factor formula has remained the same for many years but has been changed for the 2023/2024 period. The impact of the change is that all employers are now considered to be smaller than under the old method.

This has produced outcomes as follows:

For employers who have claims performance better than average, it is causing them to pay a higher premium than using the old size factor calculation.

For employers who have claims performance worse than average, it is causing them to pay a lower premium than using the old size factor calculation.

In our view, this is a counterintuitive outcome. For good performers, seeing their effective rate increase by a greater percentage than at what the Industry Rate is increasing is both confusing and troubling.

Final thoughts

Overall, for large employers it is the combination of all these factors that will impact their final premium outcome. Any changes in Industry Rates may not be the main driver behind a premium change.

Remember, employers can also be rewarded with discounts if premiums are paid by a certain date. For example, employers can receive a 5% discount if paid by 14 August 2023, and a 3% discount by 1 October.

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General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.

Lockton Melbourne, ABN 85 114 565 785, AFSL 291 954