Academic journal article New Zealand Journal of Employment Relations (Online)

The Rhetoric versus the Reality: New Zealand's Experience Rating

Academic journal article New Zealand Journal of Employment Relations (Online)

The Rhetoric versus the Reality: New Zealand's Experience Rating

Article excerpt

Abstract

There are two views of New Zealand's Accident Compensation (ACC) scheme; the first view is that the scheme is a social programme and the second is that it is an insurance-based programme which, for historical reasons, happens to be run by the state. The later, insurance-based view, leads in particular to the adoption of experience rating in the belief that this will promote fairness and safety. However, there are lessons from New Zealand's past that suggest that experience rating is not only complicated and is likely to be expensive to administer and also have little success in achieving the objective of safety in the workplace. The introduction of experience rating in New Zealand not only forces a reexamination of the insurance-based direction imposed on ACC in recent years but its also provides lessons for other countries contemplating introducing similar experience rating systems.

Introduction

Driven by a desire to completely change the previous fault-based system for workers' compensation and create a fairer system for the victims and their families, New Zealand introduced a universal no fault, comprehensive accident compensation scheme in 1974. Not only was this a major social reform, but it also represented a radical shift in thinking. A Royal Commission in 1967, chaired by Sir Owen Woodhouse, envisaged a social contract in which New Zealanders surrendered the right to sue for personal injury but received more certain, equitable and adequate compensation, rehabilitation and medical care, whether the injury occurred at work or at home and whether or not the fault could be established. To fund this scheme, Sir Owen proposed a standard flat levy rather than using the riskrelated levies that had been the practice under market-based workers compensation schemes (Royal Commission of Inquiry, 1967).

It was not unexpected that this radically new approach to compensation for injury was controversial, yet most of the recommendations in the Woodhouse Report were given effect in 1974 with the passage of the Accident Compensation Act, and a new a Crown Entity, the Accident Compensation Corporation (ACC)1 was charged with the administration of the scheme. Unfortunately, the ACC Act also carried over features of the previous workers compensation scheme, including the cumbersome system of industrial differential levies based on risk for work accidents and a provision for rebates and penalties.2

From the beginning, there was tension between those who viewed ACC as an insurance scheme (which happens to be currently run by the state) and those who viewed ACC as a social programme, rather like health and education. On the one side of the argument lies the efficiencies of the free market and on the other, the advantages of a state-run and publically funded programme3. New Zealand's experiments with experience rating since the 1970s, including the latest version introduced in 201 1, reflect this tension.

This paper reviews the past history and examines the efficacy of introducing experience rating within a changing working environment, and concludes that the case for the 201 1 experience rating scheme is thin. Moreover, the emphasis on private insurance methods, including experience rating, is likely to facilitate the reintroduction of private insurers and undermine the advantages of New Zealand's unique workers' compensation approach. In order to understand the context in which New Zealand's experience rating scheme was recently introduced, the different views of ACC are first examined.

The two views of ACC

ACC is based on five guiding principles known as the Woodhouse principles as set out in the Royal Commission of Inquiry, 'Compensation for Personal Injury in New Zealand' (see section entitled: Community Responsibility), it states that:

In the national interest, and as a matter of national obligation, the community must protect all citizens (including the self-employed) and the housewives who sustain them, from the burden of sudden individual losses when their ability to contribute to the general welfare by their work has been interrupted by physical incapacity (Royal Commission of Inquiry, 1967). …

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