Managing your policy and contributions

Agencies that are members of the Treasury Managed Fund (TMF) make contributions in place of paying general insurance premiums.

How contributions are calculated

Pools

Agencies are grouped in to pools. A ‘pool’ grouping helps to separate out agencies that have large or unique operations.

The pools are:

  • Education
  • Health
  • NSW Police
  • Primary Pool (i.e. other participating agencies)
  • Sydney Water

Target contributions

For each pool a target contribution is calculated. The target contribution represents the estimate of the total fund claims costs and expenses for the forthcoming year.

Each pool’s target contribution is not affected by the claims experience of agencies in other pools. 

The first step in the contribution setting process is the calculation by actuaries of target contributions for each financial year.

These contributions and the investment income earned will be used over many years to pay claims and expenses.

Deposit Contributions

The deposit contribution process is the apportioning through actuarial calculation of an agency’s contribution towards their pool’s Target contribution. 

Contributions terminology

  • Claims cost experience
    Actuaries working with Insurance for NSW complete an in-depth analysis of each pool’s claims costs experience. They look at trends in experience and forecast other factors that may affect the cost and frequency of future claims. For example, new legislation or improved work safety initiatives may work to increase or decrease the future cost of claims.
  • Target contributions
    Target contributions represent the value of contributions required to cover the  total expected claims costs and expenses which may occur in a fund year, for a given pool. Target contributions are allocated to agencies as deposit contributions. 
  • Deposit contributions
    The deposit contribution process is the apportioning of an agency’s contribution towards their pool’s Target contribution. For agencies in their own pool, the target contribution is the same as the deposit contribution. Actuarial services’ methodology for this calculation is different for each line of business i.e. workers compensation and liability have a different calculation method.
  • Benchmark funding

    Benchmark funding determines the funding allocation from consolidated revenue to budget agencies towards payment of their deposit contribution. 

  • Hindsight adjustments
    Hindsight adjustments are applied to workers compensation and motor vehicle contributions. It provides an incentive to effectively manage claims, and ensure that adequate contributions are collected to meet the cost of claims.  

Factors that impact your contribution rating

The factors considered when calculating TMF workers compensation contributions are: 

  • claims experience
  • agencies’ risk exposures
  • performance from comparable industries and other jurisdictions
  • impacts to claims from legislative reforms and initiatives.

How benchmark funding works

Benchmark funding for workers compensation is calculated by multiplying the Funding Rate by an agency’s total wage costs. The Funding Rate is a weighted average of an agency’s intra-icare TMF Benchmark Rate:

  • The share of the icare TMF target contribution based on the agency’s deposit contribution rates for the previous three years
  • Industry Benchmark Rate
  • The share of the icare TMF target contribution based on contribution rates expected for the agency’s industry.

Benchmark funding provides indicative cost of claims based on an agency’s industry type.

Hindsight adjustments

Hindsight adjustments are applied to workers compensation and motor vehicle contributions. It provides an incentive to effectively manage claims, and ensure that adequate contributions are collected to meet the cost of claims.  

How hindsight adjustments work

Hindsight Adjustment methodology was developed as an incentive mechanism for workers compensation and motor vehicle lines of business. It provides an adjustment to contributions paid by an agency and is designed to reflect the actual claims costs to the fund.

The objectives of hindsight adjustments are to:

  • maintain full funding of liabilities
  • return unused contributions to icare TMF agencies.

The Hindsight Adjustment methodology states that benchmark funding, deposit contribution and surplus / deficit positions are all recalculated using the same formulae as the deposit contribution calculations but with actual experience from the fund year.

A hindsight refund is payable if an agency’s claims experience has improved, while a payment is required if the agency’s experience has deteriorated.  Workers compensation contributions have two hindsight adjustments which are calculated at three and five year intervals post fund year.  Motor vehicle claims are reported and finalised within a short period of time therefore there is one hindsight adjustment calculated 18 months after the commencement of the fund year.

Hindsight calculations are applied and released to agencies at the discretion of icare. That is, icare determines when and if a hindsight adjustment will be paid. icare works with its actuaries to determine what is in the best interests of individual agencies, and what is in the best interests of the scheme as a whole. This includes considerations of external factors that agencies cannot control, and whether agencies have capacity to accept the adjustments.

icare may at times choose to process more than one hindsight in any year, or choose not to process a hindsight in any given year.