Gary McMullen, Aon’s workplace risk director, is calling for renewed attention to Australia’s fragmented workers’ compensation system, which currently operates through 11 different schemes across states and territories.
McMullen, who manages some of Australia’s largest self-insurance programs, believes the system’s inconsistencies create significant challenges for both businesses and their employees, reinforcing the need for a unified national approach.
The conversation around a national workers’ compensation scheme has gained traction following Minister for Employment and Workplace Relations Tony Burke’s announcement in June 2023 of an independent review of the Safety, Rehabilitation, and Compensation Act 1988 (SRC Act).
The review will consider whether national private-sector employers should be granted greater access to the federal Comcare scheme, which currently covers Commonwealth employees and a limited number of national companies.
McMullen, a longtime advocate for workers’ compensation reform, argues that a national scheme could resolve the inequities caused by the existing state-based systems.
“Implementing a best-in-class national workers’ compensation scheme would be a pivotal step towards addressing the inequalities that currently exist and providing consistent compensation benefits across the country,” he said.
Australia’s workers’ compensation system has its roots in state legislation developed over the past century, each jurisdiction crafting its own rules. This has led to a lack of uniformity in how claims are managed, how compensation is calculated, and the level of benefits provided.
For companies operating across multiple states, this patchwork creates administrative burdens and added costs, which McMullen believes could be mitigated under a national framework.
McMullen said recent difficulties in key state workers’ compensation systems have underscored the need for reform.
In New South Wales, for example, icare has raised premiums by 8% for the 2024-25 financial year. This follows a drop in the scheme’s funding ratio, which has fallen from 131% in 2015-16 to 92% in 2022-23, putting pressure on the financial sustainability of the program.
Victoria has faced similar challenges, with its workers’ compensation system experiencing a sharp decline in its funding ratio, falling to 84% in 2023-24, down from 123% in 2017-18.
Despite substantial government contributions to stabilise the system, premiums have risen by 42% in the past year. In response, the Victorian government has introduced reforms aimed at improving the system’s efficiency and addressing ongoing financial pressures.
Queensland’s workers’ compensation system has also seen its funding ratio slip, with a series of premium increases over the past three years. Employers in the state have faced cumulative premium hikes of nearly 12% since 2021, reflecting broader pressures on the scheme.
One of the biggest drivers of cost increases across these state systems has been the rise in mental health-related claims.
Mental health claims have increased significantly in the past decade, with payouts for psychological injuries now far exceeding those for physical injuries.
The longer recovery times associated with mental health claims, coupled with higher compensation amounts, have placed considerable strain on state compensation funds.
Proponents of a national workers’ compensation system, including McMullen, argue that a unified framework would address the inefficiencies and inconsistencies of the current model.
One major issue is the wide variation in benefits for identical injuries across different states. For example, compensation for permanent impairment claims can range from a high of $713,000 in Victoria to just $261,000 in the Australian Capital Territory (ACT).
For businesses operating across state lines, the administrative burden of managing multiple compensation schemes is significant.
Companies like National Australia Bank and Virgin Australia, which have obtained self-insurance licenses under Comcare, benefit from a single, unified framework that applies nationwide. However, many employers do not meet the criteria for Comcare self-insurance, leaving them to navigate different state-based systems, each with its own rules and regulations.
McMullen said the introduction of a national workers’ compensation scheme would provide more consistency, reducing administrative costs for employers and ensuring that workers receive the same level of compensation, regardless of location.
He said that such a scheme could also help better manage the growing number of mental health claims, which have increasingly strained state systems in recent years.
As the independent review of the SRC Act progresses, large employers, industry stakeholders, and policymakers will have the opportunity to weigh in on the future of Australia’s workers’ compensation system.
McMullen said the review’s findings could pave the way for significant reforms, including expanded access to Comcare and the potential development of a national compensation framework.
