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This section provides a brief overview of the situation prior to the introduction of Victoria's first workplace accident compensation scheme and summarises the schemes in place prior to the introduction of the AccidentCompensation Act 1985 (the ACA) and the Accident Compensation (WorkCover Insurance) Act 1993 (the WorkCover Insurance Act). This section then describes the workplace accident compensation legislation, highlights significant amendments made to the legislation and concludes with a description of the current scheme.

5.3.1

Workplace accident compensation pre-1914

Prior to the introduction in 1914 of Victoria's first workplace accident compensation scheme, injured workers could only seek compensation from their employer (or another person) if their employer (or the other person) was found to be negligent.

5.3.2

The 1914 scheme

The Workers Compensation Act 1914 (No. 2496) ('1914 Act') established that an employer was liable to pay compensation and benefits set out in the 1914 Act to a worker who suffered personal injury by accident arising out of and in the course of employment.

Under the 1914 Act all employers were required to obtain insurance (from either a State insurer or a private insurer approved under the Act) to indemnify the employer against its liability to workers. It was possible under the 1914 scheme to be exempted from the requirement to obtain insurance if an employer received certification from a County Court judge.

In 1946 the ability for employers to be exempted from the requirement to obtain a contract of insurance was restricted to those employers certified prior to 1946.

5.3.3

The 1958 scheme

In 1958 the Workers' Compensation Act 1958 (Vic) ('1958 Act') was introduced. Under this scheme employers remained obliged to obtain a policy of accident insurance or indemnity for the full amount of their liability to pay compensation from either a State insurer or an approved

private insurer. The Victorian government continued to underwrite all policies of insurance made by the State owned insurer.

The 1958 scheme continued to restrict an employer's ability to be exempted from the scheme. It also made it possible for employees to challenge whether an employer's certified scheme should continue. The Workers Compensation Board was established to regulate and manage the accident compensation scheme.

5.3.4

The 1985 scheme

The Victorian Government introduced the Accident Compensation Act 1985 (Vic) ('ACA') shortly after the release of the Cooney Report. The Cooney Report recommended by a 3-2 majority that the system of multiple agents which existed prior the ACA be retained. The Government rejected this suggestion and created a single Accident Compensation Commission which was responsible for the administration of the Accident Compensation Scheme as a whole.

Under the ACA, employers remained obliged to obtain insurance for the full amount of liability to pay compensation to workers under the ACA. Those employers who had taken out insurance would also receive an indemnity for their liability to pay damages to injured workers who could establish a common law action.

Employers were able to obtain insurance from WorkCare agents who were required to reinsure their liability under the Act with WorkCare. They therefore did not have any financial risk.

Employers were able to self-insure rather than obtain insurance from an agent if they met the criteria set out in the ACA.

All employers other than self-insurers were required to pay a levy to WorkCare which was calculated by reference to industry amounts rather than reflecting the employer's own risk profile.

In 1987 the Department of Management and Budget conducted a review which highlighted wide-spread employer dissatisfaction with the

performance of claims administration agents. Employers complained about delays in reimbursement, poor claims review, irregularity in ordering medical examinations and a lack of follow up in relation to return to work or referrals. In 1987 a new remuneration system for claims administration agents was introduced and the ability of employers to change agents was enhanced.

In 1992 WorkCare had an unfunded liability of $2.1 billion and funding ratio of under 50%. It was a system under which:

• more than 25,000 Victorians were in receipt of workers compensation benefits; and

• more than 16,000 workers had been on workers compensation for a year or more and in the case of some 8,000 workers, more than three years.

The return to work rates were dramatically inferior to those prevailing in the New South Wales Work Cover Scheme.

5.3.5

Introduction of the VWA

In 1992 the ACA was amended by the Accident Compensation

(WorkCover) Amendment Act 1992 (Vic). This abolished the Accident Compensation Commission and established the VWA to administer the new system and a new WorkCover Authority Fund.

5.3.6

1993 changes

In 1993 the Accident Compensation (WorkCover Insurance) Act 1993 (WorkCover Insurance Act) was introduced. The purpose of the WorkCover Insurance Act was:

• to impose the liability to pay compensation under the ACA on employers and to require employers to hold WorkCover insurance against that liability;

• to provide for the licensing of authorised insurers for the purpose of issuing and renewing WorkCover insurance policies;

• to provide for the levying and collection of premiums;

• to transfer the existing liability of the VWA to authorised insurers;

• to require authorised insurers to reinsure against their liability with the VWA; and

• to further improve the operation of the ACA.

The WorkCover Insurance Act required employers to obtain and maintain an insurance policy with an authorised insurer who was required to reinsure its liability with the VWA.

The WorkCover Insurance Act required the VWA to establish and maintain a statutory fund for each authorised insurer.

Under the WorkCover Insurance Act the insurance risks of authorised insurers' were pooled. The rationale was to ensure that all liabilities were

able to be met under the policies and that authorised insurers were not at ultimate risk until private underwriting occurred. It was the

Government's intention for the authorised insurers to bear the insurance risk after full privatisation.

5.3.7

Further amendments and significant events

In 1996 the Accident Compensation (Health and Safety) Act 1996 (Vic) was introduced which transferred the responsibility for the administration of Victoria's health and safety legislation to the VWA.

In 1997 the Accident Compensation (Miscellaneous Amendment) Act 1997 (Vic) completely abolished common law damages except in actions brought by dependents of a deceased worker.

In 1998 the Accident Compensation (Amendment) Act 1998 (Vic) ensured that the provision of accident compensation reverted exclusively to WorkCover with authorised insurers (and others) acting as agents for WorkCover in both insurance and compensation aspects of the scheme. The reasons for implementing the change were explained by the Minister in his second reading speech:

'Because of a number of factors, including the reinsurance and premium setting arrangements within the scheme, the substance of the Victorian WorkCover Authority's current relationship with the authorised insurers in many ways closely resembles a principal- agent relationship. Following amendments made by the bill, the Authority's relationship with WorkCover agents (whether they be insurance companies or other bodies) will be formally on this basis.'14

The 1998 Amending Act required each of the previous authorised agent's statutory funds to become part of the WorkCover Authority fund and all licenses granted to authorised insurers were cancelled. The VWA become the successor in law of each authorised insurer.

In May 2000 the Victorian Government introduced the Accident

Compensation (Common Law and Benefits) Act 2000 which has restored workers' common law rights to recover damages against negligent employers.

In October 2000, the Minister for WorkCover announced that independent actuaries had confirmed that the current scheme had

approximately $579 million in unfunded liabilities. It would appear that ________________________

this deficit reflects, in part, government policy aimed at setting premium levels that are competitive with other states (so as to attract investment to Victoria) and do not unfairly burden small businesses.

5.4

Features of the current workplace