The Origin of Victoria’s Private Accident Insurance System

Workers’ compensation in Victoria dates back to 1914, when the state parliament passed the Workers’ Compensation Act. For the first time, this act made it mandatory for employers to take out accident insurance policies to compensate workers who suffered injuries on the job, regardless of whether the workplace was liable or negligent.

While a step forward, this legal obligation drove the growth of a market in private workplace insurance where businesses competed for employers’ premiums. Predictably, the system was beset with problems from the start. Low compensation benefits that did not rise with inflation resulted in declining living standards for those who depended on the scheme. Additionally, workers with long-term injuries had to prove employer negligence under common law in order to continue receiving payments beyond a maximum time limit. This was unfair given how difficult, time-consuming, and expensive it is to prove negligence. Workers with injuries that meant they could never work again were left to languish whenever it was impossible to prove their employers were at fault. Countless workers with long-term injuries fell into poverty, either on unemployment benefits or a meager disability-support pension. Notwithstanding minor alterations, this market-based system remained largely unchanged until 1984.

Employers also found the scheme unworkable. By the early 1980s, employers’ insurance premiums had become, on average, their second-highest expense behind wages. Given the appalling occupational health and safety standards of the era, this was in large part a reflection of employer negligence. For example, during the 1970s, on average 450,000 workers endured injuries per year. This drove up the premiums charged by insurance companies. When overseas insurers entered the market in 1975, the new competition left many insurers in the red, spurring a round of cost cutting that drove premiums even higher. The result was a perfect storm of spiraling costs for employers and poverty for injured workers.

The Cain Labor Government

In 1982, Victorians voted John Cain’s Labor Party into government. Unions and business associations were both unhappy with the workplace injury insurance system and pushed his government to make serious reforms. Concerned that a lucrative market might be closed and frustrated with increasing insurance premiums for employers, the Business Council of Australia approached Cain with an offer. If his government agreed to guarantee a role for private insurance companies in managing workers’ compensation claims, the Business Council would support some reforms.

In 1982, Cain’s government commissioned a review into the workers’ compensation system. However, the review was headed by a committee dominated by representatives of employers and insurance companies. Out of five members, only two could be meaningfully said to represent the interests of injured workers. These were Jack Wood, from the Victorian Trades Hall Council, and Alan Clayton, from the Department of Industry and Labor.

Consequently, although it had been conceived of as a “compromise” between employers, unions, and insurers, the review was stacked against workers. The committee leading it was split three to two, in the employers’ and insurers’ favor in every important decision about how the new system should be run. Unsurprisingly, the insurers’ and employers’ representatives voted against both creating a public system insurance and removing private insurers from the equation. Instead, they decided that workers’ insurance claims should be managed by a handpicked group of major insurance companies under the auspices of WorkSafe. Each worker given compensation would be assigned a claims manager employed by the insurance company chosen by their employer.

Ultimately, the Cain government followed most of the advice of this committee, and the subsequent Cooney Report it produced. Instead of creating a public system, Cain legislated a public-private partnership that embedded private insurance companies within a regulatory body and gave them control over workers’ compensation and injury claims management. Although it brought about some improvements, this privately underwritten arm of Australia’s public health care system has ruined the lives of countless injured workers.

In essence, Cain’s reforms did not fix the problem. In place of a private market of multiple, competing insurers, they created a hybrid public-private system that outsources the management of workers’ compensation claims and the collection of premiums to private insurance companies. These companies are overseen and backed by WorkSafe. This led to market capture by private insurance companies while reducing the risks associated with the insurance market for workers’ compensation for the companies involved. The selected companies have changed over the years but are generally those closest to business and insurer lobby associations and the state government.

Many of these selected private insurance companies have received fines adding up to tens of millions of dollars for misconduct. For example, following a leak from a staff member, the Victorian ombudsman investigated CGU Insurance and found the company had hidden ten thousand invoices in a locked cupboard. CGU Insurance did this in order to artificially sidestep a WorkSafe performance measure supposed to make sure that invoices are paid on time. CGU Insurance agreed to repay $2.5 million it had made thanks to this fraud, and WorkSafe imposed a fine of $2.8 million.

Other WorkCover insurance companies have been found guilty of defrauding their customers in other areas of their business. For example, in 2018, the Australian Securities and Investment Commission (ASIC) forced Allianz insurance to refund $45.6 million worth of unnecessary add-on car insurance it had pushed onto consumers with the assistance of dealerships. It’s companies like this that are entrusted with helping injured workers recover and return to work safe and healthy.

WorkCover Today, Ruining Lives

Since the introduction of WorkCare in 1985, there have been reforms, reviews, inquiries, and changes in branding. These, however, have not altered the basic structure the system, which revolves around the interests of the companies that captured the workplace insurance market with the help of the Cain Labor government.

Indeed, WorkCover today is emblematic of neoliberalism. The government guarantees market capture for insurance companies and ensures their profits through servicing fees and financial incentives. Insurance companies receive an annual service fee paid to them by WorkSafe for managing claims as well as financial incentives for achieving performance measures. These performance measures create perverse incentives that apply to all the actors involved, including insurers, claims managers, and medical examiners — and they come at the expense of injured workers. For example, if insurers find a way to terminate a workers’ claim before 130 weeks — the current cap on the maximum length of a conventional claim — they receive a bonus. Similarly, insurers receive incentives for finding ways to keep injured workers at work.

This system of legally mandated profit-seeking both exacerbates workers’ injuries and leads to debilitating secondary physical and psychological injuries. A Victorian Trades Hall Council submission to a recent independent review of the Victorian workers’ compensation system included one injured workers’ story that highlights this starkly:

Cornel, an electrician with V/Line, was struggling with his modified duties but was told to stay at work “because that’s what your agent wants you to do.” His pain had become significant and prior to reaching 130 weeks, he was deteriorating mentally, even though his claim was based on physical injury. He currently has no capacity and up until recently, the agent was demanding he apply for five jobs each week. This was having a marked effect on his mental state.

It’s not just insurance agents who are tasked with ruining injured workers’ lives. Ostensibly “independent” medical examiners (IMEs) are tasked with assessing workers’ injuries, to determine whether they are fit to work. These IMEs are often biased and handpicked by insurance companies and pressured by claim managers to guarantee the most profitable outcome. It’s also common for IMEs to disagree with the opinions of injured workers’ general practitioners, even though the latter are likely to have a better understanding of their patients’ condition, thanks to their long-term relationship.

Insurers and their claim managers also stand accused of pressuring medical examiners by threatening  “doctor shopping” until they find one that will decide in their companies’ favor. When injured workers have their claims accepted, it’s common for insurance companies to hire private investigators to build a case for compensation fraud, including when there is no evidence for it.

The story of one injured former electrician is telling of these systemic failures. Paul reported being sent to multiple IMEs after a workplace injury. Against the disagreements of his doctor, the IMEs eventually determined that Paul was suffering from arthritis. However, because Paul remained insistent that he was unfit to work, his WorkSafe insurer hired a private investigator to follow him. Eventually, a year after his initial claim, an MRI scan revealed a horrific shoulder injury. Paul’s muscles had torn from the bone, and his injuries were too far gone for a full recovery. Paul developed torticollis, a painful condition that makes your neck muscles contract involuntarily, causing you to turn your head to one side. As treatment, Paul receives regular Botox injections that both prevent the spasms and mean that he is unlikely to ever work again.

Fighting for Workers’ Health

This makes it clear why people across Victoria — including injured workers — are organizing and campaigning for a change to the system. One group, the Injured Workers Support Network, has chapters in Melbourne, Ballarat, and Bendigo and is fighting for a compensation system that puts injured workers’ health before profits. Other welcome initiatives are raising awareness about these issues, including the union-backed Injured Workers Day and the Australian Council of Trade Unions’ Walk for Safety campaign.

Given the immense harm that the privately underwritten WorkCover system causes to injured workers across Victoria, this is an issue whose time is long overdue. Suffering an injury at work is bad enough. Instead of a system that harasses and harms injured workers, the Left must fight for a public system built to ensure workers’ health and dignity.