What is the Loss Prevention and Recovery (LPR) premium model and how does it work?

Why does the LPR model exist and who does it apply to?

Put simply, the LPR premium model provides an alternative method of calculating workers insurance premiums for the largest employers in the scheme, that is, those employers with an Average Performance Premium (APP) of greater than $500,000. It aims to provide incentives to these employers, appropriate to their size, industry and management systems, to help them achieve better safety and return-to-work outcomes.

The LPR model is one way that the scheme can recognise and reward employers by linking their premium contributions directly to their individual claims experience, thus improving injury prevention and outcomes for injured workers, employers and the scheme overall.

To achieve this, icare seeks an ongoing commitment from all LPR policy holders to meet the highest standards for workplace safety, injury management and return-to-work outcomes as an organisational priority.

Organisations are more likely to benefit from the LPR model if they have a clear picture of their own claims performance and have a workplace culture that is dedicated to ensuring workplace safety, injury prevention and an effective return-to-work model. icare will examine an organisation’s prior claims performance to ensure they meet the most recent entry conditions and are a suitable LPR candidate. Employers must demonstrate their commitment to meeting the required standards at entry to LPR and at each policy renewal. 

How does LPR work?

Unlike the conventional premium model where premiums are calculated based on an employer’s wages, under the LPR premium model each period of insurance is calculated individually based on an employer’s claims costs for that period as they mature over four years.  

Employers pay an initial deposit premium on commencement of the policy period based on their APP, with further adjustment contributions calculated for that specific period of insurance at the set intervals of 24 months, 36 months and 48 months after the renewal date. 

Under LPR, the adjustment contributions are a direct reflection of the employer’s own claims experience (costs) and are directly impacted by their success in injury prevention and successful claims management in returning injured workers back to work.

At the commencement of the policy period, an employer must select a large claim limit of $350,000 or $500,000 to apply to individual claims costs for a workplace injury occurring during the period of insurance. The adjustment factors are set at that time and are higher if the lower claim limit is chosen and lower if the higher limit is chosen. They do not change during the four years of adjustments as LPR policies operate independently for each policy renewal period.

How are adjustment contributions calculated?

The LPR adjustment contributions are calculated based on an employer’s claim costs each year of insurance multiplied by a claims adjustment factor, which is determined by the large claim limit selected by the employer. The adjustments can result in a positive or negative impact (refund or additional payment) and are dependent upon the development of the claims in between the adjustment periods.

Each policy period is banded by a minimum and maximum amount payable. The adjustment amounts are inclusive of any relevant charges and/or incentives. The maximum amount is the total contribution that an employer can pay for a given policy period, inclusive of claims adjustment factors. This provides security for the employer against a higher than expected frequency of claims, cost of claims or a one-off single large event.

From 2021/22 the maximum premium is capped as per the following table, based on the employer's APP, plus the standard levies. The minimum premium is the same as the scheme minimum of $175.

For grouped employers, from 2021/22 the maximum premium for the group is based on the Group APP, which is apportioned out to all members of the group.

(The information and table above has been updated on the 30th June 2021)

What does the premium payment cycle look like for LPR policy holders?

As explained earlier, once they have paid the initial deposit premium on commencement of the policy period, LPR policy holders can expect to pay adjustment contributions at the set intervals of 24 months, 36 months and 48 months after the renewal date. 

By the time an employer has been in the LPR model for five years they will need to make four payments each year as shown under the Year 5 column in the table below:

Premium Payable = Renewal Premium + 24-month Adjustment + 36-month Adjustment + 48-month Adjustment

What claims costs are used in the LPR model?

The total cost of claims for the period are included in the premium calculation and cover incurred costs and estimated costs for future claim payments. This includes payments such as weekly benefits, medical and hospital expenses, lump sum benefits, and service provider costs including investigation and legal costs. 

What claims costs are excluded from the LPR model?

The following claims costs are excluded from an LPR policy holder’s contribution calculation:

• recoveries from other parties
• claim costs will only be reduced once recoveries have been received
• recess claims 
• journey claims 
• employment assistance payments 
• Medical Support Panel costs 
• education or training assistance payments.

Why are adjustment factors used?

Adjustment factors are applied to the total claims costs to take into account the potential impact and cost to the scheme of the full cost of the claim above the large claim limit selected by the employer. They also account for any additional amounts that may be incurred for those claims that continue to remain active after the completion of the four-year LPR contribution period.

Do LPR policy holders still get the Apprentice Incentive Discount?

Yes, LPR policy holders are still eligible for the Apprentice Incentive Discount which is applied in the same way as for a conventional policy holder. 

Are there any other costs?

At the commencement of the policy period, an employer must choose to pay a security deposit or pay a Renewal Premium Adjustment (RPA) for the term of the insurance period. This ensures funds are available in the event the employer is not able to meet their workers compensation liabilities under the LPR model.

Security is equal to the Average Performance Premium (APP), or group APP if the employer is a member of a group. Security may be reduced to 10 per cent of APP after payment of the 36-month adjustment premium. Security may be released after the payment of the 48-month adjustment premium.

An RPA is an additional 25 per cent on top of the calculated deposit premium (excluding standard levies and incentives).

Learn more about the LPR model