The term “sovereign risk” is usually used in relation to a government’s creditworthiness or its reliability in dealing with business fairly and equitably.

GIO got a taste of just how erratic and risky dealing with a state government can be when Victoria’s WorkSafe – the organisation charged with administering the state’s workers’ compensation system – earlier this month dropped the Suncorp subsidiary from its panel of “agent” insurance companies.

Despite high levels of customer satisfaction, GIO lost its licence to operate within the system without warning or explanation.

Having invested millions of dollars in setting up the systems and people necessary to succeed within the Victorian system, GIO has no idea why the decision to drop it from the panel was made.

Companies which lose commercial tenders aren’t usually given reasons as to why they didn’t get the job, but the WorkSafe arrangement is different. It only lasts five years, and then all the participants – and potential participants – have to apply again.

GIO has no way of knowing why it lost its licence, so it also has no way of knowing how its performance will be judged in any future licence bid. It’s an expensive and precarious five-year exercise in which companies gamble on what WorkSafe might be thinking this time around.

On April 7 WorkSafe Victoria CEO Greg Tweedly said the new agency panel followed a comprehensive expression-of-interest and tender process which began in July.

The successful tenderers were Allianz, CGU, Gallagher Bassett, QBE and Xchanging.

GIO employers and injured workers using GIO for WorkSafe injury insurance and claims management will move to Gallagher Bassett on June 30.

Suncorp EGM Statutory Portfolio Chris McHugh, who is responsible for GIO’s nationwide workers’ compensation operations, says the group was shocked by the decision to replace it on the panel, especially considering its continued high customer satisfaction ratings.

Sacking an insurer which appears to be at or near the top of the pack in performance terms makes little sense, and GIO has asked for an explanation. It’s understood that so far there has been no formal response.

Mr McHugh told insuranceNEWS.com.au the regulators’ refusal to detail the review findings – and the reasoning behind them – “displays a complete lack of transparency”.

WorkSafe spokesman Michael Birt told insuranceNEWS.com.au the tender process looked at a wide range of issues that were similar to any other company review process.

“We don’t release the whys or wherefores of why we choose one company over another,” he said. “But I can say we have looked at a wide range of factors to ensure the overall system works well into the future.”

What those factors might be, or how they were measured, is of course confidential. It’s hardly likely to make GIO feel better.

And how can a company hope to address and improve the “factors” that led to its dropping from the panel if it isn’t told them? Mr McHugh says it’s critical for the company to understand why its tender was rejected, particularly when its performance was so good.

“Since entering the market in 2006, we have had higher employer satisfaction than anybody else,” he told insuranceNEWS.com.au.

It’s understood internal data showed that GIO was number one in worker satisfaction ratings, but that wasn’t enough to get it over the line – wherever that line was.

Because GIO is locked into a situation where there is no commitment to explain and no hope of a re-examination of its case, the insurer can only speculate as to what led to the decision.

For his part, Mr Birt says customer satisfaction was “only one of the many factors” that were looked at.

“We also look at past performance, and our decision is measured against where the system is moving forward and making sure it’s run in the best interest of employers and injured workers,” he told insuranceNEWS.com.au.

The lack of transparency as to why some companies are given the tick of approval and others aren’t also raises questions over the ability of smaller operators which may feel they have better people, systems or outcomes being able to join the workcover scheme.

GIO is understood to be continuing to press for more transparency from WorkSafe, although no one contacted by insuranceNEWS.com.au who had dealt with the body holds out any hope that the insurer will ever get an answer.

Mr McHugh has no choice but to look forward and work out ways to ensure GIO remains a national supplier of workers’ compensation services. It’s understood he has already assured GIO’s Victorian customers and broker partners that it will work to ensure a seamless transition when the new panel comes into effect on June 30.

He has also confirmed he is in talks with Gallagher Bassett on servicing GIO’s national workcover accounts in Victoria.

“We have done it successfully before,” Mr McHugh said “We weren’t in the scheme between 2002-2006 and we managed it then.”

While GIO and Employers Mutual are unlikely to ever know why they were excluded from the WorkSafe insurers panel – if there is indeed a rational explanation – the bureaucrats’ political masters should consider the potential long-term damage such secrecy can cause to their credibility with the wider business world.

If a government instrumentality can’t be transparent and honest in its dealings with significant businesses like insurance companies, why should any large business or industry be willing to trust the Victorian Government will treat them fairly in the future?