No claims discount and experience rating subsidy

We’re proposing to remove the No Claims Discount, and either reduce the cross-subsidy for the Experience Rating or remove the Experience Rating cross-subsidy altogether. 

What the original framework intended 

ACC introduced the experience rating framework in the Work Account in 2012 to incentivise improvements in workplace safety. We introduced two programmes:  

• A No Claims Discount programme for smaller businesses that have:  
  • paid levies every year for the past three years  
  • at least one invoice for ACC support/services of less than $10,000.  
• The Experience Rating programme for larger businesses that have been invoiced at $10,000 or more in levies in each of the past three years.   

Both the No Claims Discount and Experience Rating programmes compare a business’s claims history — to either a standard value (No Claims Discount) or a levy risk group (Experience Rating).  ACC then makes an adjustment to the standard levy the business would pay:

• a discount for relatively good performance  
• a loading for a relatively poor performance.   

The programmes aren’t delivering as expected  

It was believed that the programmes would result in fewer injuries, so less costs, which would lower levies. But this hasn’t happened.   

Neither programme pays for itself. The value of the loadings that we charge on Experience Rating and No Claims Discount is less than the amount of money that we pay in discounts.   

This isn’t fair. This shortfall is made up by the 477,000 businesses that are outside the No Claims Discount and Experience Rating programmes — including New Zealand’s small businesses and self-employed people. These smaller businesses are paying extra in levies to cross-subsidise the cost of claims from businesses within the No Claims Discount and Experience Rating programmes, which include some of New Zealand’s biggest employers. 

The Experience Rating programme has been refined in the 2018 and 2021 consultation rounds.  In addition to these changes, we’ve been looking at other ways to support lower injuries in workplaces. This includes partnering with higher-risk industries through our grant programme to help them improve health and safety. We believe that over time these partnerships will lower the risk of injury in these industries, however there is uncertainty of the impact on prevention and recovery performance.  

Two options to address fairness 

The No Claims Discount and Experience Rating are not bringing the benefits relating to injury prevention and faster recovery that we thought they would. 

We propose to two options. These changes will align the Work Account with one of its core principles — that each group of levy payers should pay for the cost of injuries that they can control or for which they are accountable.  

Option one: Remove the No Claims Discount and reduce the cross-subsidy for the Experience Rating programme by other businesses 

This option:   

• has a higher impact on the businesses receiving the No Claims Discount
• has a smaller benefit to New Zealand businesses not in experience rating or getting the discount 
• lowers the cost for New Zealand’s largest businesses. 

Under option one more businesses get a lower levy.  However, the businesses who currently receive a 10% No Claims Discount will have a higher levy increase than under option two.   

Option two: Remove the No Claims Discount and completely remove the cross-subsidy for the Experience Rating programme by other businesses.  

This option: 

• gives a larger reduction of levies on average for small and self-employed businesses — 5.7% 
• would reduce the impact of losing the No Claims Discount for the customers who currently get it   
• adds 1.1% to the levies collected from the 13,000 largest businesses in New Zealand 
• would make the Experience Rating programme self-funding for the first time. 

Option two provides the 93% of businesses in the No Claims Discount product who receive a 10% discount with the least impact as the product is removed. By removing all cross-subsidisation it also provides the largest benefit for businesses who are currently unable to access a discount. Large businesses who are experience rated have a small increase in levy as the cross-subsidisation is removed.   

The table below provides a summary of each option.