Premiums

Employers, other than self-insurers, are required to pay workers’ compensation premiums to cover their workers in the event of a work related injury or illness. The majority of employers in Australia and New Zealand are premium payers. Premiums fund financial and medical support to injured workers, cover the costs of dispute management and administration of the schemes.

In central and hybrid schemes, premium rates are set by a central authority based on actuarial forecasts of claim costs across all industry sectors. In privately underwritten schemes independent insurers charge premiums based on a commercial underwriting basis.

Premium rates are generally pooled across similar risk profile groups. This allows employers who share a common set of risks to spread the risk across their industry type. Across the schemes there are hundreds of specified premium rates for industry types. Employers that operate in more than one jurisdiction have to pay the relevant premium in each jurisdiction.

Premiums are usually expressed as a percentage of employers’ total wages bills. The rates depend on an employer’s:

  • size
  • industry
  • individual claims experience, and
  • the way that ‘wages’ are defined for workers’ compensation purposes, which can vary across the jurisdictions.

In 2019–20 the Australian standardised average premium rate was 1.29 per cent of payroll, which was slightly lower than the previous year 2018–19 (1.30 per cent of payroll). Table 8.5 shows the standardised average premium rate in each jurisdiction over the last five financial years as reported in the Comparative Performance Monitoring (CPM) report 23rd edition - Workers’ compensation premiums.

The standardised premium rates are determined by applying factors that adjust the combined average premium rate for employer excess and journey claims in each jurisdiction. A full explanation of the methodology for producing standardised average premium rates is in Appendix 1 – Explanatory notes of the Comparative Performance Monitoring (CPM) report 23rd edition - Workers’ compensation premiums.