Home / Daily / Audit Office seeks action on icare 'asset deficiencies'
15 December 2020
Three key icare agencies, including the main NSW workers’ compensation scheme, are underfunded to meet expected future payments and action on premiums or costs should be considered to resolve the issue, the state Audit Office says.
The Workers’ Compensation Nominal Insurer had a net asset deficiency of $316 million at the end of last financial year. The NSW Self Insurance Corporation (SiCorp) deficiency was $126 million and the Lifetime Care and Support Authority had negative net assets of $298 million.
“The implications of these agencies’ net asset deficiencies is that they are not fully funded for all expected future payments from their schemes,” the Audit Office report says. “Each agency needs to implement solutions to resolve all unfunded scheme positions.”
Responses suggested include changes to investment strategies or premium and contribution rates, or identifying cost savings in claims and expense management areas.
The Nominal Insurer posted a net loss of $1.89 billion last financial year, deepening from a loss of $876 million a year earlier.
Outstanding claims liability increased $1.5 billion to $18 billion, with an allowance for the impact of COVID-19 adding $212 million. Cash and investment holdings decreased $425 million to $17.6 billion.
icare says the estimated cost of COVID-19 across all its schemes is around $2.7 billion, including outstanding claims liabilities as well as the significant drop in investment values and reduced premium income. The biggest impact was in workers’ insurance at $1 billion.
“The funding ratios across the Workers Insurance, Insurance for NSW and Lifetime Care schemes are outside our target operating zones,” icare says.
“We continue to be in a sound financial position and are well positioned to meet all our liabilities. Our schemes are long tailed and need to be managed with a long-term horizon.”
SiCorp’s loss doubled to $2.8 billion, with outstanding claims liabilities increasing $2.5 billion to $12.2 billion.
The agency operates the NSW Treasury Managed Fund, Home Building Compensation Fund, Construction Risk Insurance Fund, Transport Accidents Compensation Fund, Governmental Workers Compensation Account, Bush Fire Fighters Compensation Fund and four other managed fund schemes.
Liabilities included, for the first time, $828 million for claims incurred but not reported for historic abuse within NSW Government institutions. COVID-19 costs, such as business interruption claims, accounted for $343 million.
The Audit Office report also addresses previously highlighted concerns around the operation of icare, including contract disclosure failings, IT system problems and worker weekly underpayments.
The report recommends icare ensure allocation of service fees to its schemes is transparent and reflects actual costs, amid concerns the Workers Compensation Nominal Insurer risks being overcharged and the costs allocation breaching legislative requirements.
icare notes many of the issues raised are already being remedied and defends fees it charges to the Nominal Insurer. The amount includes indirect fees driven by the insurer’s transformation program, which has overhauled policy, billing and claims operating systems, it says.
The report is available here.