HIH Levy

When the HIH Insurance Group collapsed in March 2001 there were many outstanding workers compensation claims. All of these outstanding workers compensation claims became the responsibility of the Nominal Insurer.

The Nominal Insurer is the body established under the workers compensation legislation to act as the insurer in certain circumstances, including when an insurer becomes insolvent. Historically, the Nominal Insurer has been funded by contributors from insurers and self-insurers, based on the amount of income collected from premiums in the previous year.

Due to the large extent of the HIH debt, this method of funding was considered unfair and likely to cause more problems. Therefore, the legislation was changed and a levy – to be paid by all workers compensation insurance policyholders, self-insured employers and state government agencies – was introduced (failure to pay the levy is an offence).

Under the legislation, the Minister for Justice and Workplace Relations decides the levy amount that will apply for the following 12-month period. A levy of 4 per cent of the premium was settled on for the period 12 months starting 30 June 2004.  The same amount was determined for the period of 12 months starting in 30 June 2005, 30 June 2006 and 30 June 2007.

The final HIH debt will be about $38 million, without taking into account any monies that may be received from re-insurance treaties or from the liquidation of HIH assets, or the cost of borrowings for cash flow in claims payments.

As a result of legislation passed in June 2004, the insurance levy is to be used to fund the transition costs associated with amendments to the weekly benefit arrangements.

The legislation was aimed at easing the financial hardship being suffered by some seriously injured workers who have to rely on weekly compensation payments for long periods. As this legislation imposed additional costs on insurers and self-insurers for existing claims it was agreed that liability for these costs should be spread across the whole scheme.

It is envisaged that this additional cost will be recovered without increasing the levy rate.