The icare nominal insurer workers’ compensation scheme recorded a net loss of $1.877 billion last financial year, hit by an increasing number of psychological injuries.

Such claims have longer incapacity durations and are more likely to exceed 15% whole-person impairment, the NSW state insurer says in its latest annual report.

The issue will persist unless consideration is given to regulatory change, according to icare, which is working with the State Insurance Regulatory Authority on potential scheme reform.

“A number of areas outside of icare’s control continue to challenge our workers’ compensation schemes,” interim CEO Stuart Farquharson said, noting the changing nature of the workforce, a corresponding rise in psychological claims and more workers experiencing full impairment  

“We are continuing to work with SIRA and key stakeholders to address these scheme-wide challenges.”

The nominal insurer workers’ compensation scheme managed more than 72,000 new claims and paid $3.9 billion in the year to June.  

There was a $712 million allowance for higher numbers of claims exceeding whole-person impairment thresholds, and $234 million for increases in average weekly benefits and fewer exits.

Net earned premium was $4.77 billion, while the underwriting loss was $2.79 billion. The funding ratio was 85% and the insurance ratio 91% – below target.

“A plan to bring the scheme to the target range has been put in place,” icare said.

The Treasury Managed Fund workers’ compensation scheme managed more than 20,000 new claims and paid out $1.4 billion. Following a $925 million disbursement from NSW Treasury, the TMF funding ratio was 105%.

One team now supports both schemes, in order to share systems and knowledge for more efficient and consistent claims management.  

icare made changes to its claims service providers model earlier this year, allowing thousands of mid-sized employers to choose from Allianz, DXC Technology, EML, Gallagher Bassett, GIO and QBE. 

“There are some early signs that the new model is working, but the nature of workers’ compensation insurance means it will take some time before the full benefits are realised in improved return to work rates, which are still below target,” Mr Farquharson said.  

The rise in whole-person impairments, historical abuse claims and significant climate events are affecting the state insurer, he says.

“These factors have led to a significant rise in claims costs and are having a material financial impact on the sustainability of icare’s schemes.

“Premium increases have not kept pace with rising claims costs and, as a result, the nominal insurer funding ratio fell. Improving the financial sustainability of the NI is a key priority for us in the year ahead.” 

Premium changes and regulatory reforms will support long-term sustainability, he says.  

“We know there is more work to do and that challenges exist on our horizon, but we are committed to improvement.”

Recruitment of a new icare CEO is under way following the departure of Richard Harding earlier this year.