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OFFICIAL
SRC Act Review
1. My name is Stephen Somogyi. I am an actuary and was a Member of the
Safety, Rehabilitation and Compensation Commission for almost 25 years
until December 2023. I was an Executive Member of APRA from July
2003 to July 2006 and am currently a Commissioner of TEQSA.
2. I welcome the initiative of the Government to conduct a review of the
SRC Act and outline below some personal views in trying to provide
some helpful insights for the Review to take in terms of the overall
scheme.
3. This paper suggests that there is good logic to make some changes in the
current legislation. There are significant advantages both in terms of
efficiency and effectiveness of a rationalised approach to overseeing and
applying risk driven regulatory frameworks to premium paying and self-
insurer enterprises. There are advantages in cost rationalisation and
governance effectiveness by combining the SRCC and Comcare.
4. The longer- term picture for workers’ compensation across Australia is
challenging. We see the already apparent trends of workforce ageing,
more part time workers and more equitably incorporating female
workers continuing over future years. This brings a higher exposure to
more expensive claims, more lengthy periods of claim and consistently
high claim cost growth, at a rate more than double the rate of GDP
growth predicted in the most recent Intergenerational Report (IGR)2.
Merging the SRCC and Comcare
5. There are several sensible short- and long-term reasons to merge the
SRCC and Comcare. The SRCC is completely dependent on Secretarial
and Self-Insurer account management services provided by Comcare.
These are often complemented by other parts of Comcare being brought
into providing specialist advice. For example, the internal Legal team has
provided valuable advice in several cases to clarify the implications and
potential solutions for various self-insurance requirements. The most
recent case being the legal and regulatory implication of the merger of
Linfox Armaguard and Prosegur Australia in the cash-in-transit industry.
6. In addition, the Chief Executive of Comcare is both the person
responsible for the agency as well as acting as the Accountable Authority
of Comcare. From a governance point of view there would be many
advantages in merging the two entities and making the SRCC the Board
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of Comcare and the Accountable Authority, both of which should have
the CEO as a Member.
7. This arrangement would provide a group of experienced and
representative people to oversee and provide advice to the CEO for both
premium paying agencies and self-insurers. It would deepen the level of
insight and the spread of experience across the two groups of entities
supervised separately at present.
8. A second reason is to gain the efficiency and effectiveness of having all
natural arms of the workers compensation and health and safety cycles
covered under one set of professional supervisors. Prevention is a crucial
part of the mix of supervisory activities required to minimise the risk of
accidents and other claims arising in future. By having prevention
separate from claims assessment and rehabilitation as well as return to
work reduces the opportunity to anticipate risky situations and to lower
the chances of claims arising. This could lower personal trauma and the
cost of claims and eliminate expensive claims being managed after the
fact. Anticipating a problem is always a superior strategy to reacting to a
problem once it has occurred.
9. This applies as much to the premium paying cohort as to the self-insurer
cohort. Exposure and proximity may encourage some premium payers to
consider the advantages and disadvantages of becoming self-insurers
themselves. Many are of sufficient size and complexity to afford a large
pool of expertise embedded within their operations, just as required for
self-insurance entities.
10.The SRC Act should allow self-insurance licences to be issued on a Group
entity basis rather than separate members of the same Group needing to
have individual licences. A significant improvement in efficiency.
11.Combining the SRCC with Comcare would provide a more intensive and
effective means of conducting investigations, to issue regulatory
instructions and to more efficiently apply sanctions, when required. This
would also enable the SRCC to provide more flexible licencing provisions
rather than applying the broad based but blunter regulatory provisions
available under the Act at present.
12.One of the more awkward functions of the SRCC is to hand the principles for
premium setting to Comcare and then have Comcare formally self-assess
whether that has been properly applied and challenging itself on those
elements where there is reason to doubt this aspect. Any premium paying
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Comcare. However, the SRCC is totally dependent on Comcare staff to investigate and report to the SRCC, after assessing the actions taken by
Comcare staff. As the effective Board of Comcare, the SRCC would provide more sensible governing oversight and challenge. Another problem at present is providing the Minister with the SRCC’s views on how Comcare administers the WHS Act because the SRCC is dependent on Comcare staff to advise the SRCC and present its self-assessment findings without a governance oversight challenge.
Licensing Arrangements
13.The current licensing arrangement of the SRCC is not optimum in its settings and therefore the outcomes at times underperform. The issuing of a licence to an organisation comes with certain conditions of licence in financial, prudential and operational performance requirements. The oversight of the SRCC is dependent upon the self-insurance supervision team embedded within Comcare vigilantly reviewing the operations of the licensee and its various service providers. The oversight and assessment processes are very much driven by a set of guidelines with only a skeleton risk assessment matrix and a set of regulatory steps which can be taken along a rudimentary risk assessment spectrum.
14.Licenses for self-insurance should be strenuously assessed, as at present, and issued with conditions, as at present. However, they should be overseen and assessed for effectiveness and performance on at least a biannual basis, and for some problematic entities more regularly. Having a combined SRCC and Comcare assessment team should enable a more risk driven framework for review and assessment which positions each licensee Group along a risk profile continuum. As efforts are implemented and assessed either more stringent conditions need to be applied, or some existing ones released to a less restrictive level.
15. Such a risk driven supervisory framework approach would mean that a license can be held for as long as the risk assessment and performance assessment process enable that to continue. On the other hand, there should be no hesitation with provision of procedural fairness to enable the combined SRCC/Comcare to remove the licence of a self-insurer, if
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16. One area of risk not overseen by the SRCC is the management of the premium payer asset pool under the management of Comcare. Some years ago, the asset pool supporting the outstanding claims liabilities was not properly matched. As a result, a significant deficit emerged due to volatile movements in financial asset values. This needs a more effective strategic asset management policy developed and implemented to ensure the prudential risk profile of the pool is effectively supervised and managed.
Governance Arrangements
17. The membership of the SRCC is governed by a tripartite principle of representation by worker representatives, licensee representatives,
Government representatives and three independents with relevant skills.
Whilst this has proven to be workable in the past, there needs to be cognisant recognition of the skills mix and experience in relevant professional fields of expertise among the SRCC Members and their ability to act as the governing body of Comcare, if that recommendation is adopted.
Anticipating the Future
18. As has been recognised by the SRC Act Review “Getting the best outcomes for injured workers”1 the existing Act has been in place, with some appropriate minor changes, for the past 35 years. Given this, it is important to look forward a sufficiently lengthy period to anticipate future pressures on these and other arrangements and to see how these can be best incorporated in the design! After all, a future challenge understood today is one that can be managed better going forward.
19. It is difficult to project forward the likely progress of only those entities, premium payers and self-insurers, being covered by the SRC Act alone. This population of organisations is fluid with existing and new entities moving into and out of coverage under this legislation. It is more instructive and inclusive to look more comprehensively across all jurisdictions existing in
Australia. The coverage of industries and enterprises and therefore the workforce will be comprehensive and move overall with the changing economic developments anticipated over the coming 40 years.
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20. We can vision how the shape of the Australian population is projected to change over the 40 years covered by the latest ABS population projections, utilised in the IGR. The projected population mix by age and gender provides a backdrop to modelling the shape of the working population going forward. The regular reports of Jobs & Skills Australia do an excellent job of looking ahead at the future mix of skills in demand and the desired skills mix likely to be generated by both the projected population and the ability of the tertiary education sectors to supply those skills. This was discussed in the Universities Accord report3 released by the Minister of
Education in February 2024. The projected skills gap analysis was based on research undertaken by Oxford Economics4.
21. We can augment these valuable insights with a view of the changing mix of the working population using past trends evident from the ABS
Workforce by Age and Sex statistics5. In Attachment 1 we see the age and gender distribution of the working population from 1983 to 2023, by full time and part time work. We can observe several crucial changes over the years. The trends are apparent along the 10-year points in the data.
22. Observation shows that the working population has more female participation at all ages. In addition, more people over age 65 are participating, mostly part time. The overall observable trend is the tendency for less full time and more part time work.
23. Whilst 51% of all Males at all ages participated in the workforce in 1983 this had grown to nearly 56% in 2023. There are more dramatic participation shifts of Females from 30% in 1983 to 50% in 2023. The age profile of participants is getting much older with Males over 60 participating at a rate of 41% (60-64) in 1983 to 64% in 2023, and more dramatically those over 64 participating at 9.5% in 1983 rising to almost 20% in 2023. For
Females these trends are just as startling with the 55-59 age group participation moving from 26.5% to 71.5%. The 60-64 age group participation moving from 12% to 52.5%, and the over 64 age group moving from 2.5% to 11%. A key trend to note is that the overall Full-time rate has declined from 82.5% in 1983 to 70% in 2023.
24. The continuation of these trends extended for the coming 40 years and converting these to millions of work hours is shown in Attachment 2. This shows the contribution to total hours worked by Males and Females will trend towards an almost 50% contribution but the rate of growth overall of
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25. Before looking forward for workers’ compensation claims we need to examine trends over the last 10 years, the only period for which we have
Australia wide claim frequency and cost statistics collected and reported by
Safe Work Australia, National Dataset for Workers’ Compensation Data5. In
Attachment 5 we can see the changes in claim frequency rates and cost per claim by age and gender. Combining this with the changes in the workforce and work hours shows us the rapid growth in claims costs per claim and overall claim costs.
26. The data in Attachment 5 shows that the last 10 years has seen significant changes already with a slowly ageing workforce driving a much faster rate of growth in cost per claim of 3.55% pa, well ahead of the growth rate of work hours of 2.12% pa and of earnings of 2.86% pa. So, the embedded pattern for the future is well established and illustrated over the past 10 years! This is also illustrated by the median age of work hours, claims and claim costs over the past 10 years:
Median 2013 2023
Age Hours Claims Cost Hours Claims Cost
Male 39 43 46 39 43 48
Female 39 45 47 39 45 49
25. Attachment 2 gives us a basis for projecting the changing future exposure to risk of workers’ compensation claims. The rate of claim per million hours worked by age and gender as well as the median compensation paid over recent years is extracted from the report of Safe
Work Australia.
26. Using these tables, we can derive a claim rate, assuming no future degradation in rate, to take forward as follows:
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Age Group Claim Frequency Rate (per million hours worked)
Male Female
0-24 7.7 5.0
25-34 6.1 4.6
35-44 5.8 4.9
45-54 7.2 7.1
55-64 8.7 9.0
65+ 7.9 8.2
27. Using the same tables6 we can derive the rate of growth of median compensation per claim using the available years of data as follows:
Age Group Median Claim Compensation Paid and Growth Rate
Male Female
$ Growth pa $ Growth pa
0-24 7,387 4.44% 4,730 1.74%
25-34 12,319 3.29% 8,896 2.01%
35-44 17,233 4.25% 13,740 3.03%
45-54 21,410 4.82% 17,421 5.41%
55-64 24,104 5.32% 18,185 6.92%
65+ 25,873 6.61% 17,068 7.13%
28. Applying these claim frequency and compensation amounts together with the rate of payment growth gives us a picture of likely compensation payments for the Australian workforce projected forward. Attachment 3 shows the projected number of claims by age and gender for the next 40 years. This table of course reflects the changing nature of the workforce, more women and more older workers working more part time than in prior decades. This also shows the greater exposure to claim risk as workers age and gender mix changes. Nevertheless, the projected growth in claim numbers of 1.16% per annum is higher than the IGR population projection.
Thus, there is some concern arising from the growing intensity of claims.
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29. However, applying the median compensation payments made together with the rate of growth of these payments each year, due to the changing nature of work, the changing nature of injury and illness and the ageing workforce produces the table in Attachment 4.
30. This shows workers compensation payments going forward are projected to grow at a rate of 6.68% per annum, compared with the IGR projection of GDP growth rate being 2.2% per annum. That means that the changing nature of work, participation, ageing workforce, gender mix and expanding compensation causes with no changes in or prevention of risk exposure may result in a significant increase in cost to the Australian economy. Without tempering the claim propensity and the claim payment intensity the economy overall will be hit by a roughly 4.4% per annum additional cost burden above natural economic growth.
31. Clearly, this is not a position the Australian economy nor the community would be willing to bear. They would expect the various rules and regulations to temper the effects of the changing risk exposure. This may mean changes to the design of work and the introduction of more significant prevention activities. After all, a risk anticipated is better avoided than one to which we only react in hindsight. Can we invest more in effective research of these crucial factors as the economy changes and reshapes into highere service intensity?
32. Can we also examine ways of reducing the cost of administrative overhead by reducing the number of regulatory bodies supervising the various workers compensation schemes in Australia. After all, we have national regulators for competition, conduct, prudential risk, higher education and others. This could reduce the need to reinvent the same oversight processes, audits and prudential requirements for premium paying and/or self-insuring organisations. This may help reduce the 12-15% overhead burden currently experienced by the 9 disparate workers compensation schemes in Australia.
33. I trust this paper has raised some issues of value. I would be very happy to discuss with anyone in the SRC Act Review Panel and their Secretariat, the Department of Workplace Relations, the Safety, Rehabilitation and
Compensation Commission, Comcare and of course Treasury.
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Stephen Somogyi.
References:
1. SRC Act Review – Getting the best outcomes for injured workers, 21
October 2024, Independent Panel.
2. Intergenerational Report 2023 – Australia’s future to 2063, November
2023.
3. Australian Universities Accord Final Report, February 2024.
4. Higher Education Qualification Demand – July 2023, Oxford Economics.
5. National Workforce Statistics by Age and Sex – ABS, November 2023.
6. National Dataset for Compensation Based Statistics – Safe Work
Australia, September 2024.
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