Workers’ compensation scheme reforms in NSW and Victoria have yet to have an impact on the soaring cost of business insurance, said Australian Industry Group CEO Innes Willox. Driven by a spike in mental health claims, particularly in the fields of healthcare and the public sector, workers’ compensation costs continue to outrun the reforms, he added, noting that mental health problems were more difficult to treat than physical injuries and it was more difficult to get affected employees back to work.
“I think we’re at a point where claims are going up faster than regulators can respond,” he said, noting that worker’s compensation costs added 1.54 per cent to wages costs in 2014, rising to 1.89 per cent in 2024-25, adding $3.3 billion to the worker’s compensation bill faced by Australian employers last year.
Introduced in Victoria last year and with a different system now being rolled out in NSW, reform measures intended to limit the drain on worker’s compensation schemes potentially pushed the claims on to life insurance, which Willox noted then also hit business.
“Everyone is trying to find their way here,” he said, comparing the worker’s compensation problems to a version of the NDIS, where claims overwhelmed the system. “In Victoria, the sheer weight of claim was risking breaking the worker’s compensation system, so they had to make adjustments, and this has played out the same in NSW,” he said, adding the claims mitigation measures would inevitably get tougher and tighter as time goes on.
“I think that’s where the rubber will hit the road. The pure financial cost will become unbearable for budgets.”
Mental health claims cost on average three times as much as physical injury claims and keep workers out of work five times longer, said a spokesperson for the Insurance Council of Australia.
“Claim volumes have been rising consistently in every jurisdiction,” the spokesperson added. “Without action, these schemes risk being unable to deliver for the injured workers who need them most, while employers face premium increases they can’t absorb.”
The Council recommended governments invest in mental illness prevention and early intervention, as well as addressing a serious shortage of psychiatrists and psychologists, particularly in regional Australia, and aiming for better consistency across jurisdictions.
Consistently rated a number one concern for business, soaring insurance premiums driven by complex workers’ compensation mental illness claims needed action, Business NSW chief executive Dan Hunter, told the Australian Financial Review’s insurance summit in Sydney last month.
“That’s not to say that some of those psych claims are not valid, we know they are, but it became far too easy to access a workers’ compensation system,” he added, noting that handling psychological injuries correctly meant ensuring claims were not simply funnelled into insurance.
“We need to get people to a place where they’re comfortable in the workplace and they’re more resilient,” he said.
Mental health problems now impinge on the nation’s entire health and disability safety net, according to Council of Australian Life Insurers CEO Christine Cupitt.
“We’ve seen it from everything from sick leave right through to life insurance, state and federal government safety nets like the Disability Support Pension and the NDIS,” she said, noting that early support for mental illness was vital. “This is telling a story about what’s happening for young people. It’s telling us that more and more young people are leaving the workforce for good due to mental ill health, and that shouldn’t be anybody’s story.”
Cupitt said there were clear flow-on effects from workers’ compensation restrictions, including a lack of medical rehabilitation support. “By the time they come to us, it’s a much more complex claim, they’ve been unwell for longer, and it does make it very difficult for them to be aging financially when they’re in that situation,” she added.
Court cases in NSW and Victoria changed the compensation paradigm – which then led to state governments taking action to restrict claims, said Daniel Walton, group executive strategy and growth at claims manager EML.
The median mental health claim now sees an employee off work for 34 weeks and the median PTSD claim sees an employee off work for 50 weeks, he added, with a cost of about $60,000 per mental health claim.