Table 7.2: Criteria for becoming a self-insurer

Workers’ Compensation and Rehabilitation Act 2003 s71, s72, s75, s84, s86

s71 — Employers must be considered fit and proper to be self-insurers. (s75) This includes a consideration of the long-term financial viability of the employer, evidenced by its level of capitalisation, profitability and liquidity.

Self-insurers must:

• s84 — Lodge a security (unconditional bank guarantee, cash deposit, or financial guarantee given by an insurance company that is an approved security provider), for an amount equivalent to 150% of the self-insurer’s estimated claims liability, and
• s86 — have reinsurance cover, where the self-insurer’s liability is an amount chosen by the self-insurer that is not less than $300,000 or more than the set limit without approval.

NB. The Workers’ Compensation Regulator has the discretion to issue or renew a self-insurance licence in circumstances where an employer does not meet one or more of the strict criteria for self-insurance, if satisfied that special circumstances exist that warrant the employer or group employer being issued a licence or having a licence renewed. The circumstances where an employer does not meet the criteria for self-insurance include, but are not limited to, instances where an employer or self-insurer does not have 2,000 full time workers.

s250   Requirement for security 

• A self-insurer licence is subject to the condition that security for the payment of all the self-insurer liabilities of the employer and each employer to which the licence extends (a self-insurer security ) must be provided and maintained on terms approved by WorkCover WA from time to time.
• The terms approved for a self-insurer security can require the self-insurer security to provide continuing security for the payment of self-insurer liabilities after the self-insurer licence to which the security relates has expired or been cancelled.
•  A self-insurer security must be provided by means of a guarantee by a financial institution approved by WorkCover WA that guarantees payment of the required security amount to WorkCover WA on demand by WorkCover WA.
• WorkCover WA may approve of a self-insurer security being provided by means of a bond, indemnity or undertaking to pay or by other means WorkCover WA considers acceptable.

The level of security required by WorkCover WA is a bank guarantee for whichever is the greater of:

• 150% of the central estimate of outstanding claims liability (rounded up to the next $100,000), or
• $2 million.

Self-insurers must also provide audited financial statements, which include:

• Balance Sheet Test (i.e. total tangible assets/total liabilities)
• quick liquidity (i.e. current assets less stock/current liabilities)
• current liquidity (i.e. current assets/current liabilities)
• interest coverage (net profit before tax/net interest expense)
• return on investment (net profit before tax/total equity)
• claims liability as a percentage of net assets (outstanding claims/net assets), and
• gearing ratio (loan capital/total capital employed).

ReturnToWorkSA will consider each of the following 4 primary indicators in all cases and the secondary indicator, where considered appropriate:

Primary indicators

• Balance sheet test, being total tangible assets divided by total liabilities
• Gearing  ratio, being loan capital divided by total capital employers
• Liquidity ratio, being current assets divided by current liabilities
• Cash flow margin, being operating cash flow divided by net sales

Secondary indicator

• Profitability ratio, being net profit before tax divided by total equity.

Part IX, Div 2, s105 of Workers Rehabilitation and Compensation Act 1988.

s105(2) — In granting a self-insurer permit, the Board is to take into consideration:

1. the employer’s financial history; and
2. the employer’s ability to provide the statistical and other information required or likely to be required under the Act; and
3. the employer’s ability to satisfy such prudential standards as the Board determines; and
4. the employer’s capacity to comply with Part XI and any regulations or guidelines for the purposes of that Part; and
5. the employer’s commitment to occupational health and safety.

WorkCover must be provided with:

• a completed Permit to Self-Insure Application form.
• a completed Financial Indicators form.
• a desktop review of financial information by an independent expert.
• printed or electronic copies of the last 3 annual reports
• evidence of a high standard of proven work health and safety management practices.
• evidence of a high standard of injury management practices.
• evidence of a high standard of claims management practices.
• evidence of ability to meet WorkCover’s data reporting requirements.

For new entity employers (that is, a legal entity with no history of operating in Tasmania), you must satisfy additional financial criteria.

• See How to apply for a permit to insure (self-insurer) for more information.

Workers Compensation Regulation 2002 Part 10.

Evidence that the applicant has unlimited reinsurance for a single event to cover the applicant’s existing and expected liability.

Actuarial report containing an estimate of:

• existing  outstanding liability in relation to compensable injuries;
• the applicant’s expected liability each year for the 2-year period beginning on the day the applicant applies for the licence; and
• the total of the expected payments in satisfaction of the applicant’s liability for compensable injuries likely to be made each year for the 2-year period beginning on the day the applicant applies for the licence.

A guarantee from an authorised deposit-taking institution in favour of the DI fund for $1,000,000 or the estimate of outstanding claims liability at the balance date, plus a prudential margin of 50% (whichever is greater).

Evidence that the applicant has in place an occupational health and safety management system that complies with any Australian or New Zealand standards in relation to safety mentioned in a protocol relating to applying for a licence

The regulator may, in writing, require further evidence that demonstrates the applicant is financially and prudentially sound or will be able to meet any obligations as an insurer under the Act for which the employer is, or is expected to be liable.

Return to Work Act 1986 s120

• Financial viability of the employer — s120(3), which is to be demonstrated through:
• the provision of the company’s 3 latest detailed annual balance sheets, including profit and loss statements, together with notes and their auditor’s report following this an actuarial report on the company, which details its current NT workers’ compensation liabilities and ability to meet both its current and expected liabilities under the Act
• reinsurance cover of an unlimited amount in excess of the company’s liability of $1 million (indexed) for any one event, and
• a 3 year history of the company’s NT workers’ compensation claims.
• financial security by way of a bank guarantee

Division 1, Part 4 of the Safety, Rehabilitation and Compensation Regulations 2019 outlines the licensee application requirements for the purposes of s 102(1)1(a) of the Safety, Rehabilitation and Compensation Act 1988.

Schedule 1, Safety, Rehabilitation and Compensation Regulations 2019 sets out the following financial and prudential requirements:

Financial – 

• provide previous 5 years’ audited statements
• financial viability assessment conducted by independent financial consultant, and
• provide certification from the principal officer that they are not aware of any likely events which may materially impact on the suitability of the applicant for approval.

Prudential:

• must have the actuary prepare a liability report to the Safety, Rehabilitation and Compensation Commission’s (the Commission) requirements
• the liability report must:
  • include an estimate of the applicant’s outstanding liability at the end of the first 12 and 24 months of the licence
  • advise the level of guarantee required (calculated by the actuary at the 95th percentile of projected outstanding claims liabilities in 24 months’ time from the licence commencement date, and
  • the addition of one reinsurance policy retention amount
• must recommend appropriate reinsurance arrangements and comment on the suitability of arrangements, and assess the applicant’s capacity to pay amounts up to the recommended reinsurance excess amount, and
• the applicant is required to obtain the bank or other guarantee in the form required by the Commission and appropriate reinsurance cover, before the commencement of the licence.

Accident Compensation Act 2001 s185 

Accident Compensation Corporation (ACC) is required to satisfy itself that an employer is able and will continue to be able to meet its expected financial and other obligations in relation to work-related injury claims because it is insolvent and financially sound. 

The Framework for the Accredited Employers Programme requires ACC must have regard to the degree that the employer can establish: 

• it has substantial net worth
• that its contingent liabilities are not excessive (details to be provided including an evaluation as to likely crystallisation of those liabilities)
• it has an appropriate working capital ratio based on current assets divided by current liabilities
• it has an appropriate equity to debt ratio, and
• it has an appropriate return on equity.

These figures should, where possible, be provided for the 3 financial periods preceding the application and include best estimates for at least the then current financial period and the next financial period (‘period’ normally meaning a year).