All workers’ compensation schemes collect funds to meet liabilities and administer the scheme. There are three different types of scheme funding: centrally funded, hybrid and privately underwritten.

In centrally funded schemes, a single public insurer — a government agency, performs most, if not all of a workers’ compensation insurer’s functions. Central insurers are responsible for underwriting their scheme.

The management and operation of hybrid schemes involves both the public and private sector. Public central insurers are responsible for underwriting, funds management and premium setting. Other functions, such as claims management and rehabilitation are contracted out to private sector bodies, usually insurance companies with specialised expertise in injury management. Details of the contracted bodies in each jurisdiction are available from the jurisdiction’s authorities.

In privately underwritten schemes, most, if not all insurer functions are provided by the private sector through approved insurance companies and self-insuring employers who meet the appropriate prudential and other prerequisites. This includes underwriting. In the Northern Territory scheme, a public insurer competes with private insurers for the provision of workers’ compensation. The degree of regulation of privately underwritten schemes by government varies. Table 3.1 outlines the scheme funding arrangements in each jurisdiction.

Net funding ratio

The net funding ratio is a net of outstanding claim liabilities and indicates the financial viability of a scheme. It measures the ratio of assets to outstanding claims liability and is generally expressed as a percentage. Where the ratio is over 100 per cent, the scheme may be over funded, and where the ratio is below 100 per cent the scheme may be under funded. For centrally funded and hybrid jurisdictions where there is a separate workers’ compensation fund (centrally funded), the scheme’s annual report identifies the assets set aside for future liabilities. For privately underwritten schemes assets are set aside to meet all liabilities.

Net assets

Net assets in centrally funded schemes are the premiums collected and invested by each jurisdiction during a financial year minus any outstanding amount the scheme may recover from third parties. In hybrid schemes, net assets are the assets available to meet the insurer’s net claims liability. In privately underwritten schemes, net assets are considered to be the insurers’ overall balance sheet claims provisions. Net assets are used in the calculation of funding ratios.

Net liabilities

Net liabilities in centrally funded schemes are the total current and non-current liabilities of the scheme minus any amounts the scheme expects to retrieve at the end of the financial year. In hybrid schemes, net liabilities are claim liabilities including the prudential margin and net of claims recoveries receivable. The liabilities in privately underwritten schemes are taken as the central estimate of outstanding claims for the scheme at the end of the financial year. Net liabilities are used in the calculation of funding ratios. Table 8.4 shows each jurisdiction’s scheme funding position as reported in their annual reports.