Personal injury claims management firm EML is in discussions with NSW state insurer icare over an extension of the workers’ compensation contract that was controversially awarded three years ago.

EML CEO Anthony Fleetwood told a parliamentary committee inquiry the initial contract ran to the end of this year with two one-year options for icare to extend, but arrangements for the next 12 months were yet to be finalised.

“We have not been advised,” he said. “We are currently in discussion with icare about what, if anything, that would look like.”

Mr Fleetwood told the committee EML was surprised the contract awarded initially was for all new claims, after tendering across options that also included 33% and 50%.

“We had anticipated that we were probably more likely to get 50%,” he said in a transcript released today. “There was certainly market discussion that they were going to go back to two or three providers. So, it was a surprise. I would not characterise that was too much of a risk from our perspective.”

The tender saw icare move from five scheme agents to one, but EML disputes suggestions that it was a small firm ill-equipped to take on the workload, and says for any of the previous agents it would have been a big increase.

“EML was the largest provider of workers' compensation claims management in Australia before the 2018 NSW contract was awarded, and we remain so,” he said.

An independent review of the NSW Nominal Insurer scheme completed last year by Janet Dore highlighted problems caused by the switch to a single IT platform to triage claims, based on an algorithm designed by icare, while also moving to one insurance agent.

Ms Dore told the committee hearing last week that the algorithm meant some people, who might appear to have only minor injuries, could miss out on case management they needed.

“The peculiarities of workers' compensation, because of individual circumstances, means you cannot rely on algorithms totally and you have to put really good checks in there to flag,” she said.

The committee questioned Ms Dore about her concerns for the financial performance of the scheme after her report highlighted a “real risk” to sustainability.

“Unless premiums go up, and that means employers have to pay more, and if underwriting losses continue in this environment of low interest rates and difficult to achieve investment returns, then, yes, I was seriously worried,” she said.

Ms Dore said she couldn’t comment on the situation currently, but agreed her concerns pre-dated the impact on investment returns flowing from the coronavirus pandemic.

State Insurance Regulatory Authority (SIRA) CEO Carmel Donnelly said she had advised icare interim CEO Don Ferguson there would be close scrutiny of the Nominal Insurer scheme June valuation and financial performance.

That includes a risk review by Ernst & Young and involvement by actuaries who do peer reviews in workers' compensation.

Ms Donnelly said she had also informed Mr Ferguson that there would be an audit of the use of the workers' compensation insurance fund by the nominal insurer “in order to assess compliance” with legislation.

“We have a number of investigations on foot that have raised issues, and so we are going to do a thorough independent audit,” she said.

Greens committee member David Shoebridge asked if that would include reported spending of $5-6 million on a creative workspace at icare called an imaginarium, when funds should have been directed toward injured workers.

“I was extremely angry, and I wanted to know who will investigate that. Do I understand that you will,” he said.

“Yes,” Ms Donnelly replied, while also noting concerns raised over whether SIRA was intruding into the territory of the icare board and lack of clarity around its powers in certain circumstances.

“I do really understand and stand by the need for a strong independent regulator that is not conflicted, but there are certainly dilemmas that arise, and we have found them in enforcement choices that would effectively have us stepping in and doing icare’s job for it,” she said.