ALAN TITCHALL reviews the country’s unique accident insurance scheme, which is now four decades old, in the light of workplace safety and escalating reparation costs and fines being doled out to employers by the courts following workplace accidents.
After being changed from covering just workplace accidents to all accidents, the Accident Compensation Act 1972 came into force in April 1974 as administered by the Accident Compensation Commission.
It was originally sold to the nation as a better and fairer alternative to the litigious, fault-based system used, and still used, in most countries around the world. To make it work as a compulsory, ‘no blame’, compensation scheme we had to abolish an accident victim’s right to sue for exemplary and punitive damages as a means of compensating personal injury under the common laws of tort (a civil wrong as opposed to a criminal act).
We have a fondness for Crown entities and homegrown practices of a Fabian-socialistic nature where one size fits all. The list is a long one and includes the RMA, Pharmac, the old Dairy Board and the NZ Bill of Rights.
Over four decades our state compensation scheme has been radically changed to cope with unforeseen claims costs, financial viability and political game playing. The scheme’s governing legislation has been amended five times through acts of Parliament, with resulting cuts in services and levels of entitlement, and increased funding levies for the earners’ fund.
Today, the original principle of ‘no blame’ looks like it got lost along the way, with increased fines lumped on companies deemed negligent by the courts, while the size and scale of reparations ordered to accident victims, on top of ACC payouts, under the guise of punitive or exemplary damages, has escalated. We have seen, recently, a dark public mood for revenge against companies held responsible for workplace accidents, but no similar outrage when it comes to liability and reparations with non-workplace accidents. It has become a common saying in this country – “being in the wrong place at the wrong time”.
The scheme has not worked in the area of accident prevention and you can argue that it could have exacerbated the country’s record for being exceptionally accident prone, and even dangerous in some activities such as ocean recreation and outdoor pursuits.
Our universal accident compensation scheme (or compulsory government accident insurance) is still touted by those who operate it as a world leader, but it has never been copied. Most first world countries operate a common law system for accident compensation, and if someone is injured through another’s negligence, their form of redress is to sue for damages (most commonly between insurance companies).
And it is interesting to observe our own workplace in terms of accidents becoming more litigious and a complex system of ACC appeal processes involving a growing army of specialist lawyers.
Was it necessary?
The scheme has always had its critics. I was a young law student at the time it was mooted and observers pointed out that, compared to other countries, our employment relations in regards to settling workplace injuries and compensation were not that litigious. Yes, the old Workers’ Compensation for Accidents Act 1900 was due for a review, but could have been amended.
We also had a modest workers’ compensation scheme in place, set up in 1900 that provided injured workers with a weekly benefit for a limited time, and not withstanding their right to sue over employer negligence. That could have been reformed as well.
You only have to look at Australia to see a traditional tort-based compensation system work fine, as long as it is updated. In practice, the common law system overseas is not as litigious as the movie and TV script writing industry would imply. The majority of claims are settled out of court through insurance companies in the same way as property claims are done in New Zealand.
The early reforms
Within its first decade of the ACC scheme hit trouble coping with intangible claims related to emotional suffering and the loss of dignity, or enjoyment of life. Claims such as sexual abuse were compensated by lump sums of money. By 1991 intangible claims were costing the country around $259 million, or more than medical and hospital accident costs.
Huge changes with the Accident Rehabilitation and Compensation Insurance Act 1992 cut entitlements, especially for intangible injuries and lump sum payments were abolished. Visitors had their entitlements whittled down.
Another massive change came in July 1999 when a National Government allowed private insurance operators to provide work-related accident insurance and the scheme became (albeit) briefly exposed to competition. In November 1999 a Labour Government won the election and, out of sheer principle, re-instated ACC’s monopoly in July 2000 and replaced the 1992 Act with the Injury Prevention, Rehabilitation and Compensation Act 2001 (renamed in 2010 as the Accident Compensation Act 2001 and note the drop of the word ‘prevention’).
The scheme had been funded on a pay-as-you-go basis since 1982 (collecting only enough levies during the year to cover the cost of claims). The 1999 reforms included placing ACC on a ‘fully funded’ model where sufficient levies are collected to cover the lifetime cost of each injury – which might require compensation over a period of 30 years or more.
The past decade
It has been over the past 10 years that the scheme has hit the headlines the most.
When the National party returned to power in late 2008 it accused the previous Labour government of underfunding ACC to the tune of about $1 billion. The following year ACC posted a $4.8 billion loss – described as the biggest corporate loss in this country’s history.
The blowout was blamed on regulatory changes to the scheme by the previous government and a widening of entitlements and consequent increase in claims. For instance, a 100 percent reimbursement scheme for physiotherapist services between 2000 and 2008 contributed to an increase in physiotherapy costs of 214 percent.
This set off another regime of cost and service cutting. Suffice to say, free physiotherapist services ended and more legislative changes were made to “get people off the scheme and back to work quicker” through the Injury Prevention, Rehabilitation and Compensation Amendment Bill 2009, and reducing ACC’s liability by billions of dollars.
While ACC levies and car registration costs increased, cuts to entitlements included dropping compensation for suicide or acts of self-harm and anyone convicted of committing a serious crime resulting in imprisonment. One of the most controversial service cuts was (and still is) related to pre-existing medical conditions and general aging (or human-wear-and-tear) when accessing injuries. If the injures are determined on an aging scale, then why aren’t the premiums?
This hardline approach led to a significant turnaround in financial performance. By the 2010/11 year, ACC recorded an operating surplus of $3.5 billion, and by 2012 was only $4.5 billion short of matching liabilities ($28.5b) with its assets ($24b).
In the 2013 budget, the Government announced a $1.3 billion cut in ACC levies over the next two years. The ‘earners’ and workers’ accounts became fully funded after the Corporation reduced the number of long-term claimants from 14,000 to less than 11,000. ACC reports are now full of self-praise about the scheme being a ‘world leader’, and defensive discussion over its huge ‘ethical’ investments around the world.
Does it prevent accidents?
Without fear of civil prosecution or compulsory liability insurance, has this country suffered a lackadaisical attitude and ‘lack of care’ in avoiding accidents?
We have six times the number of workplace accidents than the UK, and three times higher than Australia, and we tolerate a high number of deaths and injuries related to recreation in a country of rugged terrain and tempestuous weather.
We woke up to the country’s a general lack of care and H&S regulations after the Pike River Mine disaster with the biggest changes to workplace legislation for decades with the new Health & Safety in Employment Regulation 2013 (that borrows a lot from Australia) and a raft of company disciplines and regulations that increase a director’s liability with the threat of criminal action, large fines and reparations.
It goes to prove that ‘liability’ is an effective deterrent.
While the alternative tort system does not act as the only detriment to negligence, and every country needs a robust H&S regime, it is far more effective than a ‘no blame’ compensation system.
Put it this way – would some past commercial practices, legal under New Zealand’s existing regulations, be sustainable if they had to find private accident liability insurance to cover negligence, as they would in other countries?
Is this why commerce in New Zealand is facing even stiffer threats under health and safety regulations and punitive damages will likely become more common?