To fully understand the considerable opportunities which will be created for private insurers when the legislation relating to the Accident Rehabilitation and Compensation Insurance Corporation is revised later this year, it is necessary to understand a little about the history of the scheme and how it currently operates.
The scheme is unique to New Zealand. It provides comprehensive, 24 hour, "no fault" insurance cover to all New Zealanders for accidental injuries regardless of how, when or where they are sustained. It was established as a result of a Royal Commission of Enquiry, the Woodhouse Commission, which was created due to dissatisfaction with workers compensation benefits. Benefits are assessed promptly as there is no need to establish fault or liability before compensation is paid. In exchange the common law right to sue for damages, with the exception of punitive or exemplary damages, was abolished.
Undoubtedly, the ACC has achieved its goal of reducing the social and economic impacts of accidents on the community. To mitigate, what can often be significant, hardship the scheme provides a range of benefits designed to assist rehabilitation and replace lost income. However, this has not been achieved without cost. The ACC’s budget is almost one third of the total spent on public health today and the administrative department is the fifth largest in New Zealand’s Government.
Although unique to New Zealand it is possible, by segmenting the scheme into its component parts, or accounts, to demonstrate how similar benefits are provided for in other markets. The following table illustrates this.
Table 1: Individual ACC accounts and their international equivalents
|
ACC scheme account |
International equivalent |
|
Employers |
workers compensation schemes |
|
Earners |
private medical and trauma insurance |
|
Motor vehicle |
compulsory no-fault motor vehicle insurance |
|
Non-earners |
social welfare |
|
Medical misadventure |
practitioner liability insurance |
|
Subsequent work injury |
none |
Source: ACC website
The Accident Insurance Bill – creating a new market
Throughout the 1990s we have witnessed a global trend towards moving services, traditionally exclusively provided by governments, into the private sector. New Zealand is no exception to this. Many institutions have already been privatised: electricity supplies, telecommunication services and the rail industry all being examples.
This trend is set to continue with the enactment of the Accident Insurance Bill on July 1 which, in essence, opens the employers' account illustrated above to private enterprise.
The potential for disability insurers could be enormous. No longer limited to providing income protection insurance in the event of sickness, the entire accident market will be open to them. Furthermore, accident insurance remains compulsory with stiff penalties for those who fail to comply.
A closer look at the opportunities
Privatising part of a compulsory government scheme, such as the ACC, will naturally have large impact on the entire community, particularly the insurance market. For both life and general companies, the marketing opportunities that emerge should be exciting ones, and if developed to their full potential, should prove to be profitable too.
To fully understand the scale of this potential new market, we should first look at the current structure of accident rehabilitation and income replacement insurance. Up until now, the ACC has provided cover for all work and non-work related accidents. Disability income insurers have covered all sickness-related conditions which result in loss of income. Payments from the ACC have been offset against any private disability income insurance policy payments being received.
Following privatisation, not only will insurers have the opportunity to compete for accident insurance business, but they will also be in a position to explore the concept of combining accident insurance, rehabilitation services and income replacement into one integrated package.
Grouping of products in this way has been a successful strategy in the United States where the inclusion of a comprehensive range of disability and workers compensation benefits is becoming increasingly common. A typical example would include:
Further information can be found through the Integrated Benefits Institute website
Also of relevance to the disability income market is the knowledge to be gained from some of ACC’s processes, in particular its case management process. Claimants with a significant injury are assigned to a specific case manager who works with them, their doctor, employer, family and medical specialists, to achieve the quickest and most complete recovery.
With the current profitability problems in disability income insurance, it could be of value to disability insurers to look more closely at this process.
At Swiss Re Life & Health, one of our global priorities is to find solutions to the problems occurring in disability income markets around the world. In Australia and New Zealand we have initiated a project aimed at improving the overall profitability of individual disability income and group salary continuance business, by reviewing product design and pricing. As a result of this we have developed a strong position on the future of these products.
With this in mind, we are keen to expand the concept of integrating benefits as well as explore new concepts in disability income insurance. Some of the ideas we feel are worthy of further investigation include:
Motivation for change
This promises to be an era of revitalisation and reform for disability protection providers. Innovation need not be confined to merely providing insurances to fill the gaps being created by the new legislation. The time is ripe for insurers to take a completely fresh look at their products.
Employers should be taking action now to secure workplace accident cover for their employees. Insurers, positioning themselves for future growth, will benefit by supplying products to meet these needs and the wider needs of the self-employed.
Other triggers for change may include:
The time to act is now
New Zealand has proven itself to be a country which embraces innovation and reform. By dismantling the current ACC environment and introducing competition, the government has indicated that it is receptive to new ideas. Opportunities should exist for insurers to radically alter their disability income products. Given this opportunity and the fact that employers have only a matter of a few months to find alternative insurers, market activity appears relatively low. Perhaps the full implications of the changes have not been widely appreciated?
As an industry our position in the individual disability income market may be under threat. If the self employed opt to take only the minimum cover required to be meet the new requirements, a scenario which we believe is quite likely, there is a real risk that they will move their business elsewhere. Indeed brokers have expressed this very concern to us through our recent focus groups. If this market is lost it will be difficult, if not impossible, to regain and every effort should be made to ensure that our interests are protected.
Debbie Kennedy is Swiss Re Life & Health's Underwriting manager - new ventures. This article first appeared in Swiss Re Life & Health's April Digest newsletter.
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