Comparing Experience Rating against AEP

Experience Rating was introduced in 2011 to encourage employers to take ownership over their workplace claims. However, at the time ACC did not provide a great deal of education, or rather useful education, on the matter. As such, employers do not understand Experience Rating well enough to take advantage of its benefits.

Utilising Experience Ratings allows for discounts of up to 50% and penalties of up to 100%. The Experience Rating starting point for a business is not zero, it is the maximum discount (and any claim erodes the discount until you move into the penalty space). Any individual claim will impact the business for three years at a diminishing rate and a fatality will automatically lead to a 30% loading, irrespective of blame (unless you are already at a 100% loading).

Through the *AEP, you manage your own employees' work injury claims and make all cover decisions. Because this carries high responsibility and risk, the program is ideal for large businesses with an annual Work levy of $250,000 or more.

There is a solid argument for staying in the default ACC framework of Experience Rating and for moving into the ACC Accredited Employer Programme.

Two key and often prioritised reasons to move into the AEP framework are such:

a] the AEP is not subject to Experience Rating. If the business happens to have a sizeable loading under Experience Rating, this will be removed thereby creating an automatic saving (return on investment),

b] the employer has greater control over claims including declining claims. Declining claims also gives a direct return on investment.

Although the savings are real, the context is too limiting to look at these benefits on face value. 

So, let's explore these arguments and see who scores more points and which option comes out better off. 

In the AEP, the employer directly pays for the claims cost including weekly compensation. If an employer had a high loading under Experience Rating, even though this will be removed, the reason claims happened in the first place is not. By all accounts, claims will continue to happen, and costs will keep occurring, just not under Experience Rating.

Under Experience Rating, numerous claims can be challenged successfully even if they are bona fide workplace claims. Claims that are pre-existing, reaggravation, overuse injuries, motor vehicle claims, ACC not following process, health factors that impact rehabilitation – these are all grounds to review the claim and have it removed (in part or full) from the Experience Rating profile. Please understand that the employee is not impacted when these claims are challenged, and they are still able to get their full entitlement under the Act. This is about who is liable – ACC or the employer. Employers have greater control than they might think.

Although useful, this is still not the crux of what should be considered when comparing the two schemes. We need to look at what risk is the employer underwriting.

To consider the AEP, a business will be of a size where a 50% discount under Experience Rating is achievable. To achieve that, you do not necessarily need a perfect claims record. What is important to understand, is the risk the company is underwriting especially when comparing this to the **Stop Loss Cover under the *AEP.

Given the starting point is the 50% discount and that a 100% loading is possible, that is a 400% Stop Loss Equivalent. This does not make Experience Rating less risky, quite the opposite. Stop Loss Cover under the AEP sits somewhere between 160% and 250%. The score is 1 up to AEP.

What Experience Rating does provide, is an easier pathway to creating discounts. Let’s face it; we see businesses with great discounts purely by luck rather than good management and fair go to them. I do not believe luck is a good strategy under AEP though (or ever!). The AEP requires deliberate and consistent processes and a framework that must meet ACC's standards. It typically requires investment and certainly requires dedicated personnel. It is definitely not a set up and forget scenario. This makes Experience Rating more palatable, as it's there already and requires minimal investment. 

So, let's see a quick update on the scores:

Both schemes have the means to reduce the impact of a sizeable individual claim. Experience Rating caps the claim at $750 medical cost and 365 days of weekly compensation (do note that a single claim does impact over a three-year cycle). Under AEP, you can consider High Cost Claim Cover including as low as $250,000 total cost of a particular claim. This includes both medical-related cost and weekly compensation. Financially, Experience Rating will come out more favourably.

Experience Rating is attractive because it’s the default scheme. Although not well understood by most employers, it is what is in place and given ACC is typically treated as a tax, most employers will go with it as it stands without doing much at all. Fortunately, ACC for employers is not a tax, it is an insurance that just happens to be compulsory. By taking an insurance view, the conversation and focus shifts to risk. Lower the risk and pay less premium. This is arguably the crux of the problem as well as the opportunity.

By applying the AEP methodology and introducing what we consider best practice, an employer can directly control their Experience Rating and drive sizeable and ongoing discounts. Some key issues that are very consistent include, but are not limited to:

• Not having a policy framework in place that sets out rehabilitation

• Not completing the ACC Pre-employment checks at recruitment (they are free!)

• Not having the ACC Medical Authority in place, signed by the worker.

• Relying on medical certificates to pay the first week (partial or full) on a workplace claim.

• Not controlling the claim from day one and leaving it up to ACC

• Refusing to consider alternative duties. A quote we often hear "ACC pays them anyway, so who cares" – sums it up only too well.

The AEP drives a level of maturity that is sorely missing in Experience Rating. All the above points, possibly with the exception of the pre-employment checks, are ingrained in the AEP framework. All of these points are so incredibly easy to implement in Experience Rating as well. I have to give AEP a point here purely because of the maturity and discipline it drives.

Do we like AEP? Yes. Do we like Experience Rating? Yes. Do we favour one over the other? No. They both have merit.

We support both with equal passion. Our aim is to make sure we are maximising Experience Rating first before we move into the AEP. The same processes apply, they have been proven to work, so why not use them. 

Key terms

*(AEP) Accredited Employer Programme = Allows eligible businesses to manage their own workplace injury claims instead of relying on the state scheme.

**Stop Loss Cover = A specialised financial cap purchased by large businesses in the AEP to limit their total exposure to workplace injury claim costs.