NEW ZEALAND GAZETTE, No. 22 — 2 MARCH 2017

Authorities/Other Agencies of State

Report in Relation to Rates of Levies Prescribed in the Accident Compensation (Work Account Levies) Regulations 2017 and the Accident Compensation (Earners’ Levy) Regulations 2017

Sections 331(5A) and 331(5B) of the Accident Compensation Act 2001 ("Act") require the Accident Compensation Corporation (ACC) to prepare a report in relation to the rates of levies prescribed in regulations in accordance with generally accepted practice within the insurance sector in New Zealand.

This report relates to the Work and Earners’ Accounts and their respective levies for the two years from 1 April 2017. It provides information about the expected long-term impacts of the 2017/19 levy rates for those Accounts and describes long-term projections of each Account’s finances along with key assumptions on which the projections are based. Appendices A and B provide more information about the projections and assumptions.¹

The levy rates discussed in this report are shown in Figure 1. Unless otherwise stated, all rates in this report are expressed exclusive of GST.

Figure 1: Average levy rates for 2017/19 for the Work and Earners’ Accounts

The Accident Compensation Scheme

ACC is a Crown agent providing comprehensive, no-fault personal injury cover to all New Zealand residents and visitors to New Zealand.

ACC cover is managed under five separate Accounts including the Work Account and the Earners’ Account (the levied Accounts). ACC collects levies to fund both these Accounts.

The Work Account covers claims for all work-related injuries. The Work Levy is paid by employers and self-employed people working in New Zealand and is expressed as a rate per $100 of liable earnings. The average levy, reported here, is the rate that all employers and self-employed people in New Zealand would pay if ACC charged a flat levy rate. The actual rate paid by each business differs from the average rate and is determined by the claims experience of its classification unit, individual business’ claims experience, and any ACC safety incentive products and programmes a business participates in.

The Earners’ Account covers claims for non-work personal injuries for employed persons (including self-employed) not including motor vehicle injuries. The Earners’ Levy is a flat rate paid by all employees and self-employed on their liable earnings up to a defined maximum and is expressed as a rate per $100 of liable earnings. It includes a component to fund earner claims in the Treatment Injury Account.

The Levy-Setting Process

Work and Earners’ Accounts’ levies are set by regulation under the authority of sections 167, 218, 219, 244, 329 and 333 of the Act.

ACC reviews the expected costs of the levied Accounts to determine the levy rates required to meet the lifetime cost of claims in the upcoming period, along with funding adjustments to move each Account towards its funding target. The ACC Board ("Board") undertakes public consultation before recommending levy rates to the Minister for ACC.² Cabinet sets the levy rates for the forthcoming levy period after considering the Board’s recommendations, along with the public interest as required by section 300 of the Act.

Principles of Financial Responsibility in Relation to the Levied Accounts

Section 166A of the Act requires the cost of all claims under the levied Accounts to be fully funded. To achieve full funding when setting levies, section 166A requires the Minister for ACC to have regard to the following principles:

• The levies derived for each levied Account should meet the lifetime costs of claims made during the levy year.
• If an Account has a deficit or surplus of funds to meet the costs of claims incurred in past periods, that surplus or deficit is to be corrected by setting levies at an appropriate level for subsequent years.
• Large changes in levies are to be avoided.