What happens to the money I pay in premiums?

Premiums collected by icare go towards paying claims and statutory levies. A portion is also invested and used for claims due in the future.

Man with prosthetic leg exercising with  a nurse attending

To protect their employees in the event of a work-related injury or illness, employers must buy a workers compensation policy each year. In total, approximately $3.4 billion in premiums is paid annually to icare by over 296,000 employers and government agencies across NSW. 

Fortunately, the majority of businesses don’t experience a work-related accident in any given year. But this leads some employers to ask, “where does all that money go?” Even for those who have experienced work-related accidents and engaged with icare on the path to recovery and return to work, the full answer about how icare uses employer premiums to create value is not always well understood. 

Here we explain how the premiums collected each year by icare are used for the benefit of NSW:

Paying claims

In the event of a work-related injury, payments are made to injured workers to support them as they recover and return to work. These payments can include weekly compensation benefits (or income replacement), medical and hospital expenses, rehabilitation services and lump sum payments for death or permanent impairment. As expected, the majority of premiums collected each year by icare are applied to the treatment and support of injured workers. In 2016/2017, icare paid over $924 million in weekly payments of which $730 million related to injuries that happened in prior years. In that same period, icare also paid $610 million in medical and $842 million in Work Injury Damages and other claims, including $718 million related to prior years.

Investing funds to pay for claims due in the future

As discussed earlier in this series, an injured worker’s recovery can take many years. To ensure that icare is able to support such workers for the years to come, we need to set aside and invest funds for when payments are due. Working out how much money is required in the future, and when, involves complex calculations and estimates.

Statutory levies

icare is required to pay statutory levies to a number of regulatory entities to fund their activities. The majority of these levies are paid to the independent insurance regulator, the State Insurance Regulatory Authority (SIRA). The annual levies paid by icare Nominal Insurer for 2016/2017 were approximately 14 per cent of annual premium.

Day-to-day running expenses

As icare is one of the largest insurers in Australia, the day-to-day running of the organisation requires extensive planning and delivery of systems, processes and people. Approximately $580 million was paid in 2016/2017 to third party agents contracted by icare to provide case management services throughout NSW. Improvements to customer outcomes, value and efficiencies are in progress through a range of change initiatives, including the introduction of a new claims model in 2018.

Ongoing management by icare of investment and investment returns over the long term also contributes to a sustainable and competitive scheme. Without these investment returns, employers would have to pay significantly higher premiums.

As a social insurer, icare has a “commercial mind and a social heart.” That means we strive to maximise the value of the premium income we collect so that we can deliver quality services and care to the injured workers of NSW, while keeping future premiums as affordable as possible for employers.    

This is the third article in a series of articles published by icare explaining key financial aspects of workers compensation insurance. The full series comprises:

  1. How icare supports injured workers over the long-term
  2. icare targets a funding ratio to help safeguard the interests of injured workers
  3. What happens to the money I pay in premiums?