The NSW government plans to tackle the rise in workplace psychological injuries, warning workers’ compensation premiums will soar without reforms.

It says it will make greater use of workplace health and safety laws to prevent mental injuries, rather than relying on the state workers’ compensation system as its main response.

The government will consult with Business NSW, Unions NSW and other parties to create a model that gives the Industrial Relations Commission bullying and harassment jurisdiction as a first avenue for claims to be handled before compensation can be pursued.

The model will also seek to define psychological injury; align whole-person impairment thresholds to standards established in SA and Queensland; and adopt some of the anti-fraud measures recently enacted by the Commonwealth to protect the National Disability Insurance Scheme.

According to the government, for every $1 needed to care for injured people, the workers’ compensation scheme holds only 85c in assets.

If recent growth trends continue, another 80,000 workers will make psychological injury claims over the next five years.

The government says premiums for businesses facing no claims are forecast to rise by 36% over the three years to 2027-28.

“Our workers’ compensation system was designed at a time when most people did physical labour – on farms and building sites, in mines or in factories,” state Treasurer Daniel Mookhey said.

“A system that approaches all psychological workplace hazards the same way as physical dangers needs to change.

“Allowing the system to stay on autopilot will only trap more employees, employers and the state of NSW to a fate we can avoid. We must build a system that is fit for purpose – one that reflects modern workplaces and modern ways of working.”

State insurer icare’s workers’ compensation scheme – which covers most private businesses – made an underwriting loss of $2.79 billion in the 2023-24 year. It said the results reflected external factors including the rise in psychological injuries.