Most employers assume they pay their WorkCover premium to their WorkSafe agent. But as I’ve explained in the past, that is not the case. You pay it to WorkSafe, which then remunerates your agent.
‘We pay you guys $100,000 every year in insurance and what do we get in return for it?!?’ exclaims many a frustrated employer to their WorkSafe agent. But in reality, the agent has received only a fraction of those premium dollars.
WorkSafe does not make publicly available the contracts between them and their agents. The details of their service agreements and how the agents are remunerated are kept secret, even from most employees at the agents. But I can tell you that WorkSafe agents receive payment from WorkSafe in three ways:
- an annual service fee
- a lump-sum fee
- an annual performance adjustment (APA).
Annual service fee
The annual service fee is a percentage of the total premiums paid by the employers who are managed by your agent. It works out that approximately 7% of your annual WorkCover insurance premium goes to your agent. So, in a way, the agent does receive part of your premium, but it comes via WorkSafe. And it’s a surprisingly small percentage. Consider that if you pay $100,000 a year, you may only be worth $7000 to your WorkSafe agent.
The lump-sum fee rewards the agent for long-term improvement in their performance during the five-year contract period. But when this is combined with the annual service fee, the payment usually is not enough to cover the agent’s operating costs. So they must achieve specific performance targets set by WorkSafe to receive bonuses if they hope to turn a respectable profit. This is where the third type of payment comes in.
Annual performance adjustment (APA)
The APA is an incentive scheme for the agents. WorkSafe tracks an agent’s performance over seven measures, including RTW rates, reduction of the scheme’s financial liabilities, and injured-worker satisfaction. If the agent performs well, they receive a bonus, while poor performance can result in a financial penalty. Across all the measures, the agents usually succeed in receiving significant bonus payments. According to the Victorian Ombudsman, in 2014/15, WorkSafe paid between $7 million and $15 million in bonuses to each agent.
The short-term effect of bonuses on claims strategies
If you were to ask me the question, ‘Are these bonuses really all about getting people back to work sooner rather than later?’, I would answer both ‘Yes’ and ‘No’. To find out why, let’s take a closer look at one of the APA measures: continuance rates.
Continuance rates measure the amount of compensation paid on a WorkCover claim. The agent receives a bonus if injured workers return to work before a specified number of weeks of compensation is paid. It rewards them for getting people back to work sooner rather than later, which also keeps costs down. Sounds good so far.
There are three checkpoints: 13, 52 and 134 weeks. If an injured worker returns to work after eight weeks, for example, the claim is a winner against all three targets and the agent may receive three bonuses on it. They get the 13-week bonus, the 52-week bonus and the 134-week bonus because eight weeks is less than each of those thresholds. This is the maximum payment to the agent.
If the injured worker returns to work after receiving 15 weeks of compensation, the agent doesn’t hit the 13-week target but meets the 52- and 134-week goals. They still get two bonuses. Not too bad.
But claims do not count towards this bonus measure unless the worker has had at least four weeks off work. Presumably, this threshold exists to filter out non-serious injuries, where a worker’s recovery is inconsequential. Still, the disappointing truth is that your agent gets paid more when your workers are injured and stay off work for at least four weeks than if they never suffer the injury or come straight back to work.
Does your agent want your workers to get injured and stay off work for at least four weeks? I’m not going to say that. But injuries like abdominal hernias are certainly great for WorkSafe agents. Treatment of a hernia usually requires six weeks off work, at which point the worker can return to normal duties. These claims nearly always pass the four-week threshold and win all three continuance rates targets. Cha-ching!
The long-term effect on your claims
Imagine you are a case manager. An injured worker has been off work for nine months (36 weeks), so the claim has failed the 13-week continuance rate. Based on the history of the injury and the worker’s medical status, it’s obvious the claim will fail the 52-week continuance rate too. Therefore, your next achievable target on this measure is the 134-week continuance rate. The vast majority of WorkCover claims are terminated when the worker has received 130 weeks of weekly compensation. The only exceptions are workers who are totally unfit for work and are expected to remain unfit indefinitely – their benefits could continue until retirement. So you just need to set some tasks to make sure a 130-week termination sticks. As you probably have higher-priority claims to focus on right now where you could win all three continuance rate targets, you may as well just sit on this file for the next year or so.
Think about the above scenario. The worker has already been off work for nine months, but the case manager is aiming for an outcome at 134 weeks – nearly two years away! Whether there’s a termination or RTW at week 60, week 90 or week 130, the financial outcome for the agent on this measure is the same.
Of course, not every case manager at every agent manages every claim in this way. Absolutely not. But some might.
Just as you can’t sit back and wait two years for a 130-week termination, you can’t just trust that WorkSafe’s system is designed in a way that serves your best interests every time. The case manager might hit their key performance indicators (KPIs), but you won’t achieve your goals. Every day of lost productivity matters. Every week your worker receives compensation adds to your claims costs, drives up your SCEs and results in higher premiums. You need some action now, even if the agent will not benefit from it.
I don’t see any issue with the payment of bonuses. It’s a conventional way of motivating a service provider to achieve targets. WorkSafe needs injured workers to return to work in a timely fashion, as well as a reduction in the future liabilities of the scheme and claimant satisfaction with the service they receive. Their bonuses are intended to encourage the achievement of their long-term goals scheme-wide. But you must understand how these incentives could influence your claims.
Ask yourself the following question: Now that you’re equipped with some of the knowledge around what motivates WorkSafe agents, are you doing enough at your end to get the claims outcomes your business needs?
About the author
Mark Stipic is #TheWorkCoverGuy and managing director of Mark Stipic Consulting. He is the author of WorkCover that Works, the only book of its kind written specifically to help employers reduce their injuries, claims and WorkCover premiums.
When you’re ready, here are two ways Mark can help you and your business take control of your WorkCover situation:
- Get a copy of his book WorkCover that Works. It will show you how to reduce your injuries, claims and WorkCover premiums.
- Request a free, no obligation 30-minute strategy call. Mark will help you address your most pressing challenges and connect you with potential solutions if appropriate.