State workers’ compensation and compulsory third-party insurance schemes should move from public to private underwriting to increase efficiency, cut costs and improve health, according to a new report from Suncorp.

The Productivity Commission reached the same conclusion in 2004 but no schemes have been transferred since then.

Report author and Suncorp Commercial Insurance CEO Anthony Day says without an independent regulator, state governments are tempted to let schemes go into deficit.

“The NSW WorkCover scheme is currently remediating a deficit of more than $4 billion,” he says. “The Queensland workers’ compensation scheme has been on a sharp decline in recent years, managing a thin surplus in 2010/11.”

Mr Day says personal injury claims can be very expensive and sizable deficits can occur if liabilities are not monitored closely.

“Privately underwritten schemes are arguably more effective at discerning emerging trends and responding in a timely fashion.”

He says the Australian Prudential Regulation Authority requires private insurers to fully fund future claims liabilities.

While government-underwritten workers’ compensation schemes provide stable premiums determined by business type, private insurers can price according to the level of risk.

“The result [of the public system] is that safe business operators effectively subsidise negligent business operators,” Mr Day says.

Inadequate monitoring of rehabilitation in government-underwritten schemes has also allowed protracted claims to develop.

The uncertainty of government schemes can also stifle investment, because they often offer agents five-year contracts to manage policies and claims. Private insurers have more certainty to invest in staff and claims management computer systems.

The report says catastrophic injuries are better managed by the National Disability Insurance Scheme and the National Injury Insurance Scheme.

The small number of catastrophic claims is currently divided among several claims managers, but aggregating these would deliver economies of scale.