Red Alert

Quake will cost ACC $200 million

Posted by on April 24th, 2011

The Sunday Star Times has reported today that ACC expects the cost of compensation and treatment for those injured in the Christchurch Earthquake to be about $200 million. So far ACC has received 7666 claims, making the February quake the biggest single mass injury event in ACC’s 37-year history.

ACC’s head of injury prevention and insurance products, Peter Wood, said that although the long-term costs to the corporation would be high, they were manageable.

“Obviously additional claims from the Christchurch earthquake will increase costs and ACC funding requirements,” he said.

“However, the overall size of ACC allows for these increased costs to be absorbed with the current levies or funding structure without significant increases being required.”

The costs had to be seen in the context of ACC’s $16 billion in reserves and claims costs each year of more than $3b.

“It is therefore unlikely that the long-term cost of these claims will have an impact on ACC levy rates in the future.”

This highlights once again how crazy the National Party are to try and privatise parts of ACC. As a single, nationalised scheme, ACC is able to absorb the impact of a big event like the Christchurch earthquake without too many problems.

I blogged a couple of weeks ago about the impending collapse of AMI Insurance and how National’s ACC privatisation plans could lead to a similar outcome. I’m not at all surprised that Nick Smith is delaying announcing their preferred options. Carving off a big chunk of ACC and handing it to the private insurance industry right at the time you’re having to bail out one of the big players isn’t a good look in anyone’s book.

Then there is the issue of Nick Smith’s (sensible) move to ensure that victims of the earthquake received cover for the first week of injury if they weren’t able to work. Normally that cost would either have to be met by the employer for a work-related injury, or the individual themselves. Had the government already privatised the ACC work account, they wouldn’t have been able to do this as they would have effectively been instructing a private insurance company to provide cover over and above what the victim was entitled to.

ACC is a good scheme. Sure there are some areas that we’d all like to see improved, but National’s plan to farm it out to the private insurance industry is just nuts. They should go back to the drawing board and leave ACC alone.


42 Responses to “Quake will cost ACC $200 million”

  1. darrenw says:

    @Chris – on what logical basis do you make this claim? The NZ taxpayer is lumped with the cost instead of it being spread over several suppliers. The renationalisation of ACC by Labour has cost us $200million!

    This level of exposure is a risk for NZ not a good thing! We are just lucky it wasn’t worse.

    Next you’ll be suggesting that all insurance companies should be nationalised and the taxpayer should carry the risk.

  2. Draco T Bastard says:

    As a single, nationalised scheme, ACC is able to absorb the impact of a big event like the Christchurch earthquake without too many problems.

    Now apply that same logic to house insurance. Actually, any insurance always works better and is cheaper the more people you have in it. It’s another good example of competition costing more and delivering less.

  3. ghostwhowalksnz says:

    dw, you are off your meds.
    ACC is funded from employers AND employees. The individual levy is just over 2%

    What has the ‘taxpayer’ got to do with it. Would you prefer we had insurance companies denying people cover for property damage, as the people of Christchurch have found out allready

  4. Oliver I says:

    @Draco –

    “competition costing more and delivering less.”

    I am an accountant in a small firm, I have never taken a sick day over my years of work, I have not made a claim to ACC, I am a fit young person.

    Despite this I am paying 2.04% of my earnings towards ACC. I would NEVER pay that much with private insurance.

    If I was worried about the liquidity of my insurance firm I would go with a big international firm.

  5. darrenw says:

    ghost – the taxpayer carries the liability because the funds come from the general funds. I reckon we could get better cover for less than 2% and reduce compliance costs. The current system is awful.

    Draco – you are right – so pleased you agree we are better off insured by large multinational insurers with millions of insured clients. Kills your argument really doesn’t it!

  6. Spud says:

    I hope they don’t use the quake as an excuse for more woe is ACC lies! :evil: !

  7. ghostwhowalksnz says:

    dw , the funds to not come from general taxes. The 2.04% goes to ACC, most of which is invested. Your ignorance is appalling.
    Competition doesnt provide a cheaper result for this type of insurance. have you seen how much insurance companies charge for loss of income due to illness. They would start at 5% for minimal cover

  8. John says:

    So the pundits from the right discuss ACC as though it is an Insurance scheme run by the Government.It aint and never as been.
    It is recognised internationally as being excellent.

    They just hate not being able to sell schemes such as this
    so that they can spend the money the way they want to with no thought for the future.

  9. darrenw says:

    @ John – If it isn’t insurance what on earth is it??

  10. Monty says:

    Chris, National have no intention of privatizing ACC, but rather opening ACC up to competition which is a different thing, although would not have the political impact if you were a little more honest with the truth.

    However, and more importantly the ACC will be able to fund the $200m regardless of the competition that ACC needs to face.

    Of course it would have been easier if Labour had not hidden a $1.5B shortfall in ACC in the 2008 Pre-election Fiscal Update (PREFU). This was a huge landmine left by Cullen and Street to discover once the smoke had cleared post election. Explain that and then we can discuss the funding of the $200m for the Christchurch earthquake.

  11. darrenw says:

    @ghost – the reason illness cover so expensive is that ACC blocks provision of comprehensive cover. no one wants to pay twice on accident cover. A broader private scheme would deliver overall reduced costs. The govt could provide a basic cover in competition if it wanted to.

    We are also at risk of over exposure of claims. Any over exposure would have to come from general funds. Ignorance???

    Of course taking your approach you could always start a scheme as based on your approach it would never go bust from over exposure and you would be fine. happy to take the plunge and build a business on this basis?

  12. Oliver I says:

    @Monty – well put.

    I am being charged 2.04% for practically one of the lowest risk jobs there is, if I was allowed to go for a private provider I would probably save a lot of money.

  13. ghostwhowalksnz says:

    Its not’ commercial’ insurance with brokers, underwriters, admin costs that eat up a big share of the premiums, but the name says it all ‘accident compensation’.

    They dont even look back at your medical records and then pay out only half of your expected payments because you forgot some minor detail.

  14. Oliver I says:

    @GWW – then go with ACC if you want them, and let me chose my own provider. That’s all National has said.

  15. Oliver I says:

    @GWW – then go with ACC if you want them, and let me chose my own provider. That’s all National has said.

  16. darrenw – it’s not the taxpayer meeting the cost of ACC claims arising from the earthquake, it is ACC levy payers. The taxpayer may, however, end up footing the bill should one or more of the insurance companies providing cover to Christchurch homeowners collapse…

    Oliver I – independent reports have been commissioned to find an accident cover scheme anywhere in the world that is cheaper, they didn’t find one! ACC is cheap and good value for money.

    John – You’re correct, while there is an insurance-like element to it, ACC is wider than just insurance, it’s a social contract. We should never forget that people have given up rights in order to have ACC (the right to sue).

    Monty – You must get dizzy with spin like that. A service currently provided by the state will be provided by private insurance companies, that’s privatisation, plain and simple.

    Ghost – Good point. If ACC cover is privatised, the insurance companies will do all that they can to get out of having to pay. Anyone who has had to claim on car/house/contents insurance knows that.

  17. Monty says:

    I suppose like asset sales the public will have the opportunity to vote on opening ACC up to competition rather than continue to let a state owned insurance company become / remain a large inefficient, bloated hog that is now ACC. Why do Labour hate people having choice?

    The extension of your thinking would logically have never allowed Telecom, Rail, Air New Zealand, and a whole host of SOEs to be opened up to competition.

    Would Cullen and Street got away with not declaring a $1.5b shortfall if ACC were a Privatised company?

    What are ACCs assets today? Several billion dollars I suspect, so why the scaremongering over $20m? or does that argument not help your politicking and scaremongering? Chris, it is you that is spinning trying to call competition privatization. But again other than the Labour faithful, it is not an argument that has gained any traction.

  18. Oliver I says:

    @Chris – Follow through your thinking, If you are right and ACC is the cheapest then there is nothing to fear with opening it up to competition as no one will go with other providers.

    But at least give people the choice, I wouldn’t buy ACC given the choice myself, for the amount of money, and likelihood of me needing it.

    Though I would like to see an the reports into every single insurance company in the world…

  19. MikeG says:

    not heard of a loss leader then Oliver?

  20. Oliver I says:

    @Mike – What’s your point? If I can find a cheaper provider I should be able to chose it, if I don’t want it I shouldn’t be forced to pay for it, if it is the best option then I should be able to select it.

    If Chris is right and no other insurer in the entire world is cheaper than ACC for a similar service then wheat is there to fear? however I am skeptical of the validity of this “report”.

  21. MikeG says:

    my point is simply that the low premiums we will see if ACC is privatised will not be sustainable – as happened last time.

  22. Oliver I says:

    @Mike, – change providers when the price goes up like most people then. Just give consumers the choice

  23. Draco T Bastard says:

    Kills your argument really doesn’t it!

    Nope. For three reasons.

    1.) Competition increases costs due to duplication of services and less than 100% of people being in the one organisation (operating cross borders doesn’t change that) and so it will be far more expensive even using a large multi-national corporation.
    2.) A large multi-national corporation is actually at more risk for multiple disasters happening at the same time (Chch Earthquake followed by Japan’s as an example) and so premiums will be even higher and/or the risk of them defaulting on paying will be higher.
    3.) Multi-national corporations are more likely to game the system so as not to pay out. We saw this the last time National privatised ACC.

    National have no intention of privatizing ACC, but rather opening ACC up to competition which is a different thing,

    No Monty, it really is the same thing – just set up so that ACC lose even more so that when National get round to selling it off people are, theoretically, happy to see it go.

    I am being charged 2.04% for practically one of the lowest risk jobs there is, if I was allowed to go for a private provider I would probably save a lot of money.

    Insurance costs in the US, which has the privatised system that you want, is three times the per capita cost in NZ so the evidence is that it would actually cost you a whole lot more.

  24. Oliver I says:

    @Draco – my point was if ACC is cheaper I would go with them, if a private provider was cheaper I would go with them. The cost of insurance around the world doesn’t change that very basic proposition.

  25. Galeandra says:

    @ Oliver 1- my point was if ACC is cheaper I would go with them, if a private provider was cheaper I would go with them.
    And would your provider cover your loss in a non-work context eg if you fell out of bed or were involved in a traffic injury situation, for example?
    Would it contribute to the cover of your retired neighbour who had equivalent misfortunes?
    What value do you put on the social safety net ACC supplies to NZers?

  26. Draco T Bastard says:

    @Oliver
    My point was that the existence of competition makes it more expensive than it would be without that competition.

  27. ghostwhowalksnz says:

    Oliver 1 , you misunderstand the earners levy of 2.04%. It has nothing to do with your job.
    This is for non work ( and not in a motor vehicle) accidents.

    The rate for your ‘safest job’ would be different and would be paid for by your employer.

    The rate is a community average, and yes we pay for sports injuries even if we dont play sport, but its cheaper that way. Imagine individually assessing risk and asking if you play rugby or lawn bowls, the cost of this ‘choice’ would be enormous. In this instance the higher your income the more you pay as a %. This is because the most payments go in 80% of your pre-accident wages.

    Im baffled by the lack of factual information about ACC around that you display

  28. tracey says:

    BTW the govt has stated that reinsurance payments so far for CHCHCH earthquake is $3.75B. Govt was working on $1.7b. That means quite an unexpected saving for the Govt and NZ. Why are they not trumpetting it more? My fgures arent quite right cos going from memory

  29. tracey says:

    John, good points. Many of the NACT supporters here suddenly dont like PWC when they report on something like ACC, or at least dont bother to read it.

    “Actually, any insurance always works better and is cheaper the more people you have in it.” Not for AMI

  30. tracey says:

    Oliver, as an accountant do you always recommend the cheapest options to your clients or do you assess the inherent risk of going for the cheapest and discuss that with them? Sometimes the reason something is cheaper is because it’s not as good as the opposition product, not as comprehenisve and wont be around as long.

  31. Oliver I says:

    @Tracey – Price is a motivator, of course it isn’t the only motivator. It’s a hypothetical debate to say one would be in any way better or worse than the other given we are not given the choice as it stands, but I would assess all options equally.

  32. darrenw says:

    @Draco – so based on your explanation we should nationalise everything and rely on fortress NZ as this is better and cheaper for us? The idea that competition is good for setting market prices is completely wrong and the communists had it right. Thanks so much for putting me straight – I think I’ll move to North Korea now. Care to join me?

  33. Draco T Bastard says:

    @darrenw
    My idea is that, as competition is more expensive, we should give thought to where we want competition applied. ACC and, IMO, housing insurance is best not having competition as it just costs more without any added benefit and, often, a decrease in services. On the other hand, R&D is where competition can work. Multiple people applying multiple ideas to one problem will come up with multiple solutions. We can then choose the best of the solutions.

    @Oliver

    …but I would assess all options equally.

    No you wouldn’t – not if what you say on these boards is any indication. You seem completely incapable of assessing ideas that go against your ideology of privatisation at all costs.

  34. tracey says:

    ACC is NOT an insurance company I wish people would grasp that unlike insurance companies ACC has an underpinning social goal. Please read PWC (which also has some ammunition for changing it)

  35. darrenw says:

    @Tracey – like so many of the ‘social goals’ you purport ACC is a costly, limiting, inefficient and ineffective service that fails to deliver economically or socially. Lofty goals are no good unless delivered. If it was such a marvelous scheme it would have been replicated globally – that it hasn’t is proof of it’s failure.

  36. Draco T Bastard says:

    like so many of the ’social goals’ you purport ACC is a costly, limiting, inefficient and ineffective service that fails to deliver economically or socially.

    Which just so happens to be cheaper and better than any other system in the world – especially the private insurance firms.

  37. Oliver I says:

    @Draco – “your ideology of privatisation at all costs.” – I love the melodrama in your tone, are you standing for a seat?

    I have said we should open ACC up to competition and let the workers decide what package suits them best. If it is ACC, great, if it is another provider, fine, just give us the choice.

    Even if you close your eyes and hold your breath and think really hard opening up to competition still isn’t privitisation, try and get the definitions right.

  38. George says:

    “Actually, any insurance always works better and is cheaper the more people you have in it.” Not for AMI

    Please elaborate.

    I am an AMI policyholder, and have spoken with senior staff at the company regarding the ‘crisis’.

    I’d like to know what point you’re trying to make here, and I’d appreciate facts rather than supposition.

  39. Draco T Bastard says:

    @Oliver

    I have said we should open ACC up to competition and let the workers decide what package suits them best.

    And you’re still not listening – opening ACC up to competition will make the entire process less efficient and thus more expensive. We know this as we have seen it in reality. The US health system, which is the privatised system you promote, is the most expensive in the world.

    The Battle is over Money, Not Philosophy

    The basic story is that the Medicare system is far more efficient than the private insurance sector in delivering health care and holding down costs. This has nothing to do with whether we prefer the government or the private sector. It just happens to be true.

    And the US Medicare is nowhere near as good as our ACC or our health system in general. Privatisation is incredibly expensive.

    Even if you close your eyes and hold your breath and think really hard opening up to competition still isn’t privitisation, try and get the definitions right.

    Yes it is because it will destroy the efficiency of ACC allowing the government to sell it off in the future which is the whole point of the excersise.

  40. Quoth the Raven says:

    The US does have a private healthcare insurance market, but it is by no means a free market see Kevin Carson’s, who actually works in the healthcare industry, The Healthcare crisis a crisis of artificial scarcity. It’s a poor system corporatised and cartelized by the government with healthcare costs that are artifically raised by government intervention. Furthermore, as Megan McCardle points out:

    the US isn’t even close to being the leader in consumer-driven medicine, if by that you mean cost-sharing and purchasing decisions; in the rich world, that would almost certainly be Switzerland, where consumers patients not only pay heavily out of pocket, but purchase their own insurance, as both Kaiser and Cato will tell you.

    The Netherlands has also recently reformed its healthcare system to be more market orientated like that of Switzerland’s. The Swiss government also expends a smaller amount on healthcare than the US at around a quarter versus nearly half of all healthcare spending for the US.

    And corporate insurance is not the only model for private healthcare. Roderick Long tells the history of how the US government destroyed voluntary mutual aid associations which provided cheap affordable healthcare for the working class in the US in How Government Solved the Health Care Crisis Medical Insurance that Worked — Until Government “Fixed” It.

  41. Peracannaliculus says:

    All this Tory talk of choice is nauseating, people do not have accidents on purpose, do not get ill on purpose, do not have earthquakes on purpose. The single fund for these occasions represents an acceptance of a nation wide social contract for all irrespective of wealth or circumstance. Run by one for all must make it stronger cheaper and able to cope with the huge events like Pike River and the Christchurch earth quakes. For those who wish to ‘ opt out ‘ of the social contract feel free to pay the price do so, leave the rest of us willing to pay our way and the ‘ freedom ‘ to do so.

  42. George says:

    (Tracey) “Actually, any insurance always works better and is cheaper the more people you have in it.” Not for AMI

    I asked for clarification:

    (George) Please elaborate.

    I am an AMI policyholder, and have spoken with senior staff at the company regarding the ‘crisis’.

    I’d like to know what point you’re trying to make here, and I’d appreciate facts rather than supposition.

    Well?