Performance indicators

Recommendation 9:

That the VWA clearly define and communicate key performance indicators (KPIs) and indicative benchmarks used to assess an employer’s suitability to self-insure.

The Act requires an employer to be ‘fit and proper’ with respect to a range of matters in order to qualify for self-insurance; however, the Act may provide for a wide interpretation of ‘fit and proper’. As such, it is proposed that a set of indicative performance benchmarks be clearly defined and communicated to existing and prospective self-insurers, thereby increasing consistency and transparency.

The Review supports a stronger focus on performance outcomes, greater clarity and increased transparency for self-insurance. These performance benchmarks would align, where appropriate, with the measures being proposed in the performance management framework to assess a self-insurer’s performance and assign them to one of the proposed three tiers.

Some examples of the relevant indicators are provided in Table 4. These include indicators already assessed by the VWA as part of its Guidelines for the Evaluation of Applications for Self-Insurance. Subsections 142(2)(b, c, d and h) also relate to the performance management framework.

Page 49 of 111 Act subsection Examples of relevant key performance indicators s142(2)(a)
net worth

liquidity ratio

equity/debt ratio

operating profit after tax s142(2)(b)
claims management resources

rate of claims management non-compliances in audits

satisfaction of injured workers

number of substantiated complaints s142(2)(c)
claims frequency rate⁵

average claims cost⁶ s142(2)(d)
number of prosecutions

OHS audit results

average number of Notices per WorkSafe inspector visit

SafetyMAP level or external accreditation of management systems

s142(2)(h)
numbers of non-compliances with the Act

numbers of non-compliances with the Accident Compensation Regulations 2001

numbers of non-compliances with the terms and conditions in Schedule 4 to the Regulations s142(2)(i)
a number of other indicators could also be used to

assess any one of the subsections or such other matters as the Authority thinks fit

Table 4 – Potential key performance indicators

Over time, the range of performance indicators could be expanded or changed, if additional, relevant indicators are identified and reported.

Having defined a suite of performance indicators, the next step is to define indicative benchmarks. Stakeholder views on this issue are mixed. For

5 Claims frequency rate is the number of standard claims reported per $ million remuneration. Note: The measure may be changed to the number of standard claims reported per 1000 employees, depending upon any changes to performance measures used for the broader scheme.

6 Average claims cost is total payments divided by the number of standard claims reported over the period.

Page 50 of 111 example, the Victorian Trades Hall Council stated in its September 2003 submission that “[e]mployers wishing to become or remain as such [self-insurers] must earn that privilege by bringing to the scheme a superior performance in all areas of injury prevention, claims management and occupational health and safety standards” (p.1)

Self-insurers and employer groups, on the other hand, believed that there should not be too undue an emphasis placed on comparative or superior claims and OHS performance, and that self-insurance itself would operate as an incentive for comparatively poorer performers to improve.

In the second reading speech to the 1996 (and most recent substantive) amendments to the self-insurance provisions of the Accident Compensation Act, the Government of the day stated that self-insurance measures “enable workplaces to take greater responsibility for improving injury prevention and return-to-work outcomes in the manner that is most appropriate for their particular circumstances” and that “[p]ermitting employers to be directly accountable for claims management and the associated administrative costs provides additional incentives to not only prevent injuries but to reduce costs by providing for the early and sustained return to work of injured workers”.

The Government also stated that “[s]elf-insurance makes employers more directly accountable for their Workcover performance and requires higher standards in workplace safety and injury management programs”.

The Review found no reason to recommend any significant departure from this position, and proposes that self-insurers should be held accountable to high standards in workplace safety and injury management programs.

Consistent with this statement, prospective self-insurers generally would be expected to perform better than the indicative benchmark levels of

performance. However, the VWA would review each applicant in the context of its individual circumstances.

The indicative performance benchmarks, where possible, would be published annually to provide transparency and to inform prospective self-insurers of the expected minimum requirements.

Page 51 of 111 In the first instance, it is proposed that key performance indicators would be assessed at the WIC level⁷, where this was appropriate. This is the method currently employed by the VWA when assessing new applicants for self-insurance. However, in some cases small sample sizes may reduce the reliability and validity of comparing an employer at the WIC level. Therefore, as an alternative, it is also proposed that indicative benchmarks be developed for each of the twelve high-level industry groups.

The industry groups are:

• agriculture, forestry, fishing and hunting;

• mining;

• manufacturing;

• electricity, gas and water;

• construction;

• trade;

• transport and storage;

• communication;

• finance, property and business services;

• community services;

• recreation, personal and other services; and

• public administration.

The expected minimum performance standard could be set at a particular performance percentile for each WIC or industry group, less an appropriate margin. For example, the indicative benchmark could be the performance of the best 40 per cent employer (i.e. the 60th percentile employer) in a WIC or an industry group, with a margin of 10 per cent. There may need to be discretion in the application of such benchmarks, particularly when comparisons are drawn within high performing sectors.

It is hoped that by using a suite of performance indicators, no one single performance indicator will incentivise behaviour which has the opposite effect to that intended, for example hoarding or suppressing claims to reduce claims frequency rates. A balanced set of indicators should mitigate this risk. It is also proposed that evidence of any employer activities seen as influencing performance indicators artificially, be considered a serious matter in the determination of whether an employer is ‘fit and proper’.

It is possible to implement this recommendation under the existing legislation.

However, under the legislative change model (option 2) legislative change may be sought to provide greater support for this recommendation.

7 See section 3.3 for an explanation of WIC level.

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