Introduction - Insurance Commission of Western Australia Web viewThe Board’s Dividend Policy and the . Insurance Commission of Western Australia Act 1986. ... Historical document

Annual Report 2015Insurance Commission of Western Australia

This version of the Annual Report is provided in Word to comply with accessibility requirements. View the PDF version of the report to view images and tables removed from this version.

Welcome to the Annual ReportThis report describes the functions and operations of the Insurance Commission of Western Australia (Insurance Commission), shows how the organisation performed and presents the audited financial statements and performance indicators for the financial year ended 30 June 20151.

This report and previous annual reports are available on the Insurance Commission’s website: icwa.wa.gov.au.

On request, this report can be made available in alternative formats.

Statement of Compliance

Hon Dr Mike Nahan MLATreasurer

In accordance with section 63 of the Financial Management Act 2006, we hereby submit for your information and presentation to the Parliament of Western Australia the Annual Report of the Insurance Commission of Western Australia for the financial year ended 30 June 2015.

The Annual Report has been prepared in accordance with the provisions of the Financial Management Act 2006, the Insurance Commission of Western Australia Act 1986, and a resolution of the Board of Commissioners of the Insurance Commission of Western Australia, passed on 14 September 2015.

FRANK COOPER CHAIRMAN14 September 2015

ROD WHITHEARCHIEF EXECUTIVE14 September 2015

1 The year ended 30 June 2015 is referred to herein as 2015. The same terminology applies for other years referred to in this Annual Report.

http://icwa.wa.gov.au/

Table of Contents1. INTRODUCTION..............................................................................................................1

1.1 Chairman’s Report.....................................................................................................1

1.2 Chief Executive’s Report...........................................................................................3

1.3 Performance Highlights.............................................................................................6

2. OVERVIEW.......................................................................................................................9

2.1 Who We Are..............................................................................................................9

2.2 What We Do..............................................................................................................9

2.3 Our Approach..........................................................................................................10

2.4 Operational Structure...............................................................................................10

2.5 Governance Framework..........................................................................................14

2.6 Performance Management Framework...................................................................15

3. PERFORMANCE............................................................................................................17

3.1 Insurance Commission............................................................................................17

3.2 Compulsory Third Party Insurance..........................................................................21

3.3 RiskCover................................................................................................................32

3.4 Investments.............................................................................................................40

3.5 Fraud Investigations................................................................................................43

4. SIGNIFICANT ISSUES...................................................................................................45

5. FINANCIAL STATEMENTS............................................................................................47

5.1 Statements of Compliance.......................................................................................47

5.2 Financial Statements Index.....................................................................................48

6. DISCLOSURES AND LEGAL COMPLIANCE................................................................49

6.1 Ministerial Directions................................................................................................49

6.2 Other Financial Disclosures.....................................................................................49

6.3 Governance Disclosures..........................................................................................51

1. INTRODUCTION

1.1 Chairman’s ReportOn behalf of the Insurance Commission’s Board of Commissioners (the Board), I am delighted to present the Annual Report for the financial year ended 30 June 2015.

The Insurance Commission, excluding the RiskCover Fund that it manages on behalf of the Government of Western Australia (Government), reports a profit after tax of $193.5 million for 2015. This compares favourably with a profit after tax of $76 million for 2014.

CATASTROPHIC MOTOR VEHICLE INJURY INSURANCE The Insurance Commission engaged extensively with motorists and the disability sector during the year to seek support for no-fault motor vehicle catastrophic injury insurance. The majority of responses to the Green Paper issued by the Government supported the expansion of the insurance offered by the Insurance Commission. As a result of this feedback, the Government decided that expanded motor vehicle injury insurance will provide care and support to all people catastrophically injured in motor vehicle crashes in our State from 1 July 2016.

GOVERNMENT DIVIDEND AND TAXATION

The Board’s Dividend Policy and the Insurance Commission of Western Australia Act 1986 balances the Insurance Commission’s objective of delivering efficient and equitable insurance services to Western Australian motorists while providing a basis to deliver an appropriate dividend to Government.

It is pleasing to report that in 2015, the Insurance Commission paid a final dividend of $16.2 million to Government for the 2014 year and an interim dividend of $18.9 million for the 2015 year.

The healthy return delivered by the Insurance Commission to the taxpayer on its investment fund means that tax payable to the Government for 2015 returns another $35.8 million. The Insurance Commission also paid $58 million in insurance duty to Government during 2015.

BELL GROUP RECOVERIES

I had hoped to report this year on the distribution of the Bell settlement sum of approximately $1.7 billion between creditors. However an agreement could not be reached between those creditors. The extreme positions put forward by some parties creates the risk of further decades of litigation being required.

To provide a way forward without these major delays in distribution of funds to creditors, the Hon Dr Mike Nahan MLA introduced legislation in May 2015. The Bell Group Companies (Finalisation of Matters and Distribution of Proceeds) Bill 2015 passed the Lower House in June and was introduced into the Upper House in August 2015. The Insurance Commission has contractual and statutory rights to pursue claims up to $1.2 billion of the Bell Group recoveries. However, this would take years through the Courts to achieve. The Bill offers the opportunity for a faster path to resolution for creditors, including the Insurance Commission.

ACKNOWLEDGMENT

I would like to thank my fellow Commissioners, the Chief Executive and his Executive Team and staff for their ongoing dedication throughout 2015. This group of people continually deliver important work on behalf of Government and our community, and it is appropriate that their commitment is properly recognised here.

The year ahead looks to deliver an investment return of a scale lower than the last three years. We have further work to do to ensure our assets are sufficiently diversified to offset insurance liabilities, and that the insurance divisions are not reliant on investment returns to break even.

INSURANCE COMMISSION ANNUAL REPORT 2015 │ 1

I look forward to working with the Insurance Commission on the challenges of next year, which will be the 90th anniversary of its foundation to provide insurance services to miners in the goldfields of Kalgoorlie, Western Australia.

FRANK COOPER CHAIRMAN


1.2 Chief Executive’s ReportThe Insurance Commission and RiskCover received approximately 19,000 insurance claims and paid approximately $700 million to injured people and Government agencies during 2015 and incurred an additional $693 million in future claims expenses.

The combined Insurance Commission and the RiskCover Fund generated more than $1.2 billion in revenue and earnings in 2015. The Insurance Commission’s profit before tax was $265.8 million for 2015, which was better than budget by $109.1 million. This result was higher than the Insurance Commission’s profit before tax of $99.5 million in 2014 but much lower than the result of $424.1 million in 2013.

Investment returns rather than insurance operations again drove the positive financial performance for the year, with a total investment return achieved for 2015 of 9.7% or $402.3 million. This is the third consecutive year we have been able to deliver a total investment return at about or above 10%, with returns achieved in 2014 of 10.5% or $434.1 million, and in 2013 of 14.9% or $480.7 million. The Insurance Commission’s investment return over the last three years totals 39.3%. These very positive results obviously help the Insurance Commission meet the financial demands its insurance claims present. The Insurance Commission now holds $4.7 billion in total assets (including receivables) of which $4.4 billion are investment assets.

Looking ahead, it is difficult to be confident the Insurance Commission can maintain investment returns of that order. Public commentary about interest rates and future investment returns increasingly uses the phrase ‘lower for longer’ so frequently this term is now common parlance.

As we prepare this Annual Report, risks associated with investments made to offset insurance liabilities have been realised. August results took $$90.5 million out of our investments for the Insurance Commission. Had this decline occurred prior to 30 June 2015, the Insurance Commission’s profit before tax would have decreased by 34% down to $175.3 million and RiskCover’s profit would have decreased by 24% down to $76.5 million.

We therefore must continue positioning our main insurance lines to be supported more strongly from premium revenue and improved operational efficiencies to reduce the reliance on these investment returns to break even or make a profit.

COMPULSORY THIRD PARTY INSURANCE

Our Compulsory Third Party (CTP) Division made an underwriting loss of $15.1 million during 2015. This result was a significant improvement compared to the $228.8 million loss for 2014, but came up just short of the 2015 budget by $5 million. This is the 15 th time in 19 years that the Third Party Insurance Fund (TPIF) has recorded an underwriting loss, albeit a small one last year.

In 2015, we received almost $525 million in revenue from CTP premium payments by motorists for over 2.7 million insured vehicles. This was less than the forecast premium revenue of $534 million as Western Australia experienced some slowing demand for new cars. Despite that lower growth, the fact that Western Australia has far more vehicles than it has licensed drivers, helps keep our CTP premium lower than elsewhere.

The Insurance Commission paid $453.1 million to people injured in motor vehicle crashes during 2015, bringing the total paid in the last three years to $1.3 billion. Claims costs for catastrophic injury claims continue to rise due to increases in wage growth of medical and allied health services. In addition to claims payments, future claims expenses of $470.3 million were incurred during 2015.

Cost pressures for the Insurance Commission will grow next year when motor vehicle injury insurance is expanded to cover all people catastrophically injured in crashes in Western Australia. Expanded insurance cover will commence from 1 July 2016. This follows an extensive community consultation program in which the majority of respondents supported


increased cover to provide long-term care to an estimated additional 44 people each year. We are currently working with Government and engaging with the disability service sector on the design, development and implementation phases of the scheme.

The cost of long-term care and support for people catastrophically injured can be as high as $10 million over their lifetime, and has averaged $4 million. To fund the additional costs of care and support for these people, annual CTP premium rates will rise by $99 per family car from 1 July 2016.

Even after that price increase, we will continue to deliver one of the most affordable CTP insurance schemes in Australia for motorists. Despite the lift in the annual cost of CTP insurance (including GST and duty) of $303 up to $415 after 1 July 2016, CTP in Western Australia will still be considerably cheaper than the CTP premium rates in South Australia ($488), Victoria ($494), the Northern Territory ($544), the Australian Capital Territory ($600) and New South Wales ($614).

RISKCOVER The RiskCover Division of the Insurance Commission achieved its first positive underwriting result in six years, $21.6 million ahead of costs in 2015. This result was $33.9 million better than budget and was due to a reduction in net claims incurred. Fortunately for the RiskCover Fund and the people working in insured agencies, there were 2,000 fewer new insurance claims received in 2015 compared to the previous year. We hope this is the start of a trend, but do not know if that will prove to be the case.

While a reduction in new claims received by RiskCover in 2015 was a positive result, it was not matched by a corresponding reduction in workers’ compensation claims costs. Costs of claims in some workers’ compensation categories continue to rise well above 2013 and 2014 levels. The cost of claims in 2015 is largely a consequence of 19% of claims contributing to 82% of the compensation costs.

The RiskCover profit for 2015 was $100.5 million, which was a $60 million improvement from 2014. This positive result, and the strong investment return on RiskCover Funds of $78.9 million in 2015 allowed RiskCover to return approximately $54.5 million to agencies associated with claims in current and prior years. The underwriting result (excluding investment performance) is due to fewer property and some reduction in workers’ compensation insurance claims received. In past years, variability in claims experience and investment returns resulted in significant variations in agency insurance costs from year to year. We will work to develop a financial model that reduces these variations.

RiskCover purchases reinsurance to protect Government agencies and the community against large or catastrophic losses that might affect their financial security. During 2015, RiskCover used its purchasing power and favourable conditions in the reinsurance market to acquire broader cover for 2015-16 at more competitive prices than 2014-15. Cover has been doubled for some insurance lines such as liability and terrorism. Cyber risk reinsurance has been purchased for Government agencies for the first time due to the increasing number and impact of these events globally.

ADMINISTRATION COSTS

The Insurance Commission’s internally controlled administration costs (excluding Bell Recovery costs) decreased $1.1 million in 2015 to $53 million, compared to $54.1 million in 2014. Insurance Commission administration costs have decreased by $7.9 million or 13% since the end of the 2011 Financial Year.

OUR PEOPLE

I would like to thank our staff, the Board and our Management Team for their hard work throughout 2015. Delivering these positive financial results in a tight fiscal environment is a great outcome.

We continue to focus our attention closely on delivering efficient and equitable insurance services to Western Australian (WA) motorists and public authorities. During the year, we


delivered Projects to improve our service delivery through automated processing of claims documents and invoices, and enhanced data capture and communication processes. We are also making some structural changes to ensure the Insurance Commission is best positioned to meet our customers’ needs.

During 2015, we established a working group to help us achieve our objective of being an organisation that strategically identifies, supports, promotes and manages talent. I look forward to the group assisting us making progress towards our diversity targets and promoting the organisation as a ‘great place to work’.

As we look to the year ahead, the Insurance Commission will continue its pursuit of its rights and recovery of costs under the Bell Recovery through all available legal and statutory means. We welcome the action taken by the Treasurer introducing the Bell Bill, and the passage of that Bill into law, to potentially bring an end to what we think might be Australia’s longest running litigation, and the prospect it holds to finally return money to the major creditors after more than 25 years.

ROD WHITHEAR

CHIEF EXECUTIVE


1.3 Performance Highlights2015 HIGHLIGHTS

INSURANCE CLAIMS (INCLUDING RISKCOVER)TOTAL CLAIMS - 19,068TOTAL PAID - $695.8 MILLION

CONTRIBUTION TO THE STATENET DEBT REDUCTION - $395.4 MILLIONDIVIDENDS - $35.1 MILLIONTAX PAYABLE - $35.8 MILLIONINSURANCE DUTY $58 MILLION

PERFORMANCE TOTAL PROFIT BEFORE TAX - $265.8 MILLIONINVESTMENT PERFORMANCE - $402.3 MILLIONUNDERWRITING LOSS - $50.3 MILLIONTOTAL VALUE OF ASSETS - $4.7 BILLIONPREMIUM REVENUE - $857 MILLION (INCLUDING RISKCOVER)

CUSTOMERSTOTAL INSURED VEHICLES - 2,767,428TOTAL GOVERNMENT AGENCIES COVERED - 168TOTAL GOVERNMENT EMPLOYEES COVERED - 122,373

NO-FAULT INSURANCE - WORKING TOWARDS THE INTRODUCTION OF NO-FAULT MOTOR VEHICLE CATASTROPHIC INJURY INSURANCE IN WASTART DATE 1 JULY 2016 - COVERS ALL PEOPLE CATASTROPHICALLY INJURED IN CRASHESPUBLIC SUBMISSIONS - 2,395WEBSITE TRAFFIC - 5,300+ HITS AND DOWNLOADS OF CONSULTATION DOCUMENTS


ACTUAL PERFORMANCE COMPARED TO BUDGET (INSURANCE COMMISSION)

This version of the Annual Report does not show financial tables to comply with accessibility requirements. The financial tables can be viewed in the PDF version of this report.


ACTUAL PERFORMANCE COMPARED TO BUDGET (RISKCOVER)This version of the Annual Report does not show financial tables to comply with accessibility requirements. The financial tables can be viewed in the PDF version of this report.


2. OVERVIEW

2.1 Who We AreThe Insurance Commission is a Government Trading Enterprise, which is a statutory corporation owned by the Government of Western Australia.

Our enabling legislation is the Insurance Commission of Western Australia Act 1986 (the Act).

The Insurance Commission administers the Motor Vehicle (Third Party Insurance) Act 1943.

There is a range of other legislation that is applicable to the Insurance Commission in the conduct of its business, with which the Insurance Commission complies.

The responsible Minister is the Hon Dr Mike Nahan MLA, Treasurer, Minister for Energy, Citizenship and Multicultural Interests.

2.2 What We DoThe Insurance Commission is primarily responsible for:

administering, underwriting and managing Western Australia’s (WA) Compulsory Third Party (CTP) insurance scheme for motor vehicle personal injuries;

managing RiskCover, the self-insurance arrangements on behalf of Government;

investing and managing funds to provide assets to meet insurance liabilities; and

advising Government about insurance and risk management.

The Insurance Commission manages and arranges underwriting for the following four funds:

1. Third Party Insurance Fund;

2. Compensation (Industrial Diseases) Fund;

3. Insurance Commission General Fund; and

4. Government Insurance Fund.

The Insurance Commission also manages but does not underwrite the:

RiskCover Fund;

Employers’ Indemnity Supplementation Fund;

Former Police Officers’ Medical Benefit Scheme; and

Indian Ocean Territories CTP Scheme (on behalf of the Commonwealth).


2.3 Our ApproachOur approach to what we do is reflected in our vision, mission and core values.

VISION

A Government Business Enterprise delivering efficient and equitable insurance services to WA motorists and Government Departments and Authorities.

MISSION

To provide high quality and efficient:

motor vehicle personal injury insurance for WA motorists;

self-insurance fund management (RiskCover) for Government’s Departments and Authorities;

industrial diseases insurance to the mining sector and management of the Insurance Commission General Fund, Employers’ Indemnity Supplementation Fund and Government Insurance Fund; and

advice to the Government on insurance and risk management matters.

CORE VALUES

In everything we do, our Core Values are:

simplicity;

teamwork;

accountability;

integrity and openness; and

respect and compassion.

2.4 Operational StructureThe Insurance Commission delivers services through four divisions:

1. Compulsory Third Party;2. RiskCover;3. Investments; and4. Corporate Services.


2.4.1 Compulsory Third Party InsuranceThird Party Insurance Fund

The Insurance Commission is the sole underwriter of Compulsory Third Party (CTP) motor vehicle personal injury insurance in WA. The CTP Division manages the Third Party Insurance Fund (TPIF).

The CTP insurance policy is issued to motorists along with the motor vehicle licence by the Department of Transport (DoT). DoT and its agents issue policies and collect premium payments on behalf of the Insurance Commission.

The CTP policy provides owners and drivers of WA registered vehicles with an unlimited indemnity against personal injury claims for injury they may cause to others from motor vehicle crashes in WA.

At 30 June 2015, there were approximately 2.8 million motor vehicles insured in WA (including approximately 514,700 caravans and trailers).

CARSCARAVANS

AND TRAILERS

GOODS VEHICLES MOTORCYCLES OTHER FARMING

VEHICLES

1,55,500 514,700 464,000 129,600 73,500 35,200

Any third party injured as a consequence of negligent driving of a WA registered motor vehicle is entitled to pursue a claim for personal injury compensation under the CTP scheme. Our CTP Division administers and manages insurance claims.

If the fault of another party can be established by a claimant, interim progressive payments for related medical accounts and for proven past economic loss are generally made, even though there is no legal requirement for the Insurance Commission to do so before the claim is settled. This payment policy aims to alleviate financial hardship and minimise inconvenience to claimants and their families.

Sections 7 and 8 of the Motor Vehicle (Third Party Insurance) Act 1943 state that the Insurance Commission also assumes the role of a ‘Nominal Defendant’ where, for example, a third party is injured in a motor vehicle crash with another vehicle and either the driver or the vehicle is unlicensed/uninsured or cannot be identified.

Online Crash Reporting

Crashes are reported to the Insurance Commission using the Online Crash Reporting Facility (OCRF). The facility provides a flexible and convenient ‘one-step’ mechanism for people to report motor vehicle crashes in WA.

As well as providing a more efficient, convenient and customer focused means of reporting crashes, the improved reliability, accuracy and completeness of crash data delivered by the OCRF provides better data to inform road safety strategies and initiatives in WA. There is room for improvement in linking more tightly the consequences of crashes (i.e. insurance claims) costing nearly half a billion dollars each year and road safety efforts.

No-Fault Catastrophic Injury Insurance Fund

Amendments will be required to the Insurance Commission of Western Australia Act 1986 to establish the No-Fault Catastrophic Injury Insurance Fund. This Fund will be established by 1 July 2016.

No-fault motor vehicle premium revenue, together with Insurance Commission investment income, will be used to pay no-fault catastrophic injury insurance claims and scheme


administration costs once implemented on 1 July 2016. The Insurance Commission recognises the scheme will be underfunded in its initial period unless another source of revenue is found to supplement the premium revenue to pay for cover provided in 2016-17 where an insurance premium has not been paid.

Indian Ocean Territories CTP Scheme

The Insurance Commission, under a Service Delivery Arrangement with the Commonwealth Government, will manage the Indian Ocean Territories CTP Scheme, on a fee for service basis until 2018.

2.4.2 RiskCover The RiskCover Division manages several self-insurance functions and claims functions on behalf of the State Government.

RiskCover Fund

The RiskCover Fund is the self-insurance arrangement for WA Government public authorities (agencies). RiskCover provides cover for the majority of the agencies insurable risk exposures.

RiskCover provides workers’ compensation cover for most agencies under the Workers’ Compensation and Injury Management Act 1981. RiskCover also provides cover for accidental loss or damage to property, personal accident and legal liability cover for general, professional and medical treatment.

The RiskCover Division collects fund contributions (premiums) from agencies and manages claims. The RiskCover Fund is underwritten by the State Government.

Financial assets are held and invested by the Insurance Commission on behalf of Government to meet insurance liabilities.

Government Insurance Fund

The Government Insurance Fund (GIF) is a consolidation of the Government’s superseded self-insurance arrangements that preceded RiskCover. The Fund is in run-off and RiskCover manages any claims received against it on behalf of Government.

The WA Department of Treasury (Treasury) has financial responsibility for any deficit in the GIF and its liabilities via a Right of Indemnity Agreement.

Compensation (Industrial Diseases) Fund

RiskCover issues industrial diseases insurance policies to employers involved in the mining industry and pays claims against these policies. The liabilities are underwritten by the Insurance Commission and claims are paid from the Compensation (Industrial Diseases) Fund (CIDF).

Insurance Commission General Fund

The Insurance Commission General Fund (ICGF) caters for the run-off of non-government liabilities of the former SGIO. No policies have been issued since 1987. Liabilities relate to workers' compensation and public liability claims against mining and asbestos related diseases (not covered by the CIDF). The run-off process is lengthy as some asbestos claims typically have long latency period between exposure and disease diagnosis.


The ICGF acts as the operating fund of the Insurance Commission. Investment assets are held within the ICGF and then allocated to other funds. Insurance Commission assets for its own use are held within the ICGF. The asset revaluation reserve for the Forrest Centre is held in the ICGF.

Employers’ Indemnity Supplementation Fund

WorkCover WA manages the Employers’ Indemnity Supplementation Fund (EISF). The Insurance Commission has statutory responsibility to process claims against this Fund when an authorised workers’ compensation insurer goes into liquidation. WorkCover WA invokes a levy on workers’ compensation policyholders to fund EISF liabilities. The majority of existing EISF liabilities arose from the collapse of the HIH Group of Companies in 2001.

Former Police Officers’ Medical Benefit Scheme

The Police (Former Officers' Medical and Other Expenses) Act 2008 was enacted to cater for medical and other expenses incurred post-separation by former Police Officers and Aboriginal Police Liaison Officers who sustained a work-related injury or disease during service and have since left Western Australia Police. The Police Commissioner is liable for the medical and other expenses incurred, and appointed the Insurance Commission to manage claims on behalf of Western Australia Police.

2.4.3 Investments The Insurance Commission, assisted by its independent investment consultant, determines an investment strategy to meet its insurance liabilities in line with prudential guidelines approved by the Treasurer of Western Australia.

The Insurance Commission’s investment objectives are to:

achieve an investment performance target of Consumer Price Index plus 3.5% annualised over rolling seven year periods;

achieve a rate of return for each asset class that exceeds the relevant performance benchmark over rolling three year periods;

maintain a level of liquidity that is sufficient at all times to meet insurance payments; and

assist the Insurance Commission maintain a fully-funded position.

The Insurance Commission uses a combination of external investment managers and internal asset managers. The Treasurer approves appointments of external investment managers.

The Investments Division invests RiskCover funds and other moneys it holds on behalf of the Government in its investment portfolio under the same arrangements used for Insurance Commission funds.

2.4.4 Corporate Service Divisions The two core insurance divisions (CTP and RiskCover) and the Investments Division are supported by the Executive, Finance and Administration, Information Technology and Human Resources areas. Legal Services has a primary function to protect and pursue the Insurance Commission’s interests in the Bell Group litigation and recovery. Fraud Investigations focuses on identifying fraudulent behaviour against our CTP and RiskCover operations.


2.5 Governance Framework

2.5.1 Board of CommissionersThe Insurance Commission’s Board is responsible for providing effective governance and performing the functions and duties required of it under the Insurance Commission of Western Australian Act 1986.

The Chief Executive, who is a Commissioner ex officio, is responsible for managing the day-to-day operations of the Insurance Commission.

[photo of Board of Commissioners]

Back row from left: Terry Agnew (Commissioner), John Scott (Commissioner), Dr Christopher Kendall (Commissioner) and Stephen Boyle (Commissioner)

Front row from left: Rod Whithear (Commissioner ex officio), Frank Cooper (Chairman) and Ainslie van Onselen (Deputy Chairman)

2.5.2 Executive Team[photo of Executive Team]

Back row from left: Bruce Meredith (General Counsel); Glenn Myers (Chief Information Officer); Kane Blackman (Commission Secretary); Rick Howe (Deputy Chief Executive); Damon de Nooyer (Chief Finance Officer)

Front row from left: Grant Speight (General Manager Human Resources); Julie O’Neill (Chief Investment Officer); Rod Whithear (Chief Executive); Janice Gardner (Deputy General Manager RiskCover); Fab Zanuttigh (General Manager Compulsory Third Party); Don Williams (General Manager RiskCover)


Delegation

ASSURANCE

BOARD OFCOMMISSIONERS

AUDIT AND RISKCOMMITTEE

CHIEF EXECUTIVE

Accountability

EXTERNAL AUDIT

INTERNAL AUDIT

TREASURER

INTERNAL POLICIES AND PROCEDURES EXECUTIVE TEAM


2.6 Performance Management Framework

2.6.1 Outcome Based Management FrameworkThe Insurance Commission contributes to the following two Government goals:

GOAL 1 - OUTCOMES BASED SERVICE DELIVERY: GREATER FOCUS ON ACHIEVING RESULTS IN KEY SERVICE DELIVERY AREAS FOR THE BENEFIT OF ALL WESTERN AUSTRALIANS.

INSURANCE COMMISSION OUTCOMES

fully funded Third Party Insurance Fund;

affordable premiums for Western Australian vehicle owners;

a CTP claims system that treats claimants fairly and delivers equitable compensation;

fully funded RiskCover Fund;

sustainable fund contributions (premiums) to RiskCover agencies; and

a RiskCover claims system that treats agencies and claimants fairly and delivers equitable compensation.

INSURANCE COMMISSION SERVICES

provide efficient administration, underwriting and management of the statutory motor vehicle personal injury insurance scheme;

provide timely, equitable and efficient CTP claims management service;

collect RiskCover fund contributions (premiums) from agencies;

provide agencies with high quality insurance, risk and injury management advice and efficient administration, underwriting and management of self-insurance via the RiskCover Division; and

provide timely, equitable and efficient RiskCover claims management services.

GOAL 2 - FINANCIAL AND ECONOMIC RESPONSIBILITY: RESPONSIBLY MANAGING THE STATE’S FINANCES THROUGH THE EFFICIENT AND EFFECTIVE DELIVERY OF SERVICES, ENCOURAGING ECONOMIC ACTIVITY AND REDUCING REGULATORY BURDENS ON THE PRIVATE SECTOR.

INSURANCE COMMISSION OUTCOMES

Sufficient financial resources to be able to meet commitments.

INSURANCE COMMISSION SERVICES


Perform Fund management and investment functions to manage monies and other property to provide assets to meet insurance liabilities.

2.6.2 Shared Responsibilities with other Public Authorities

DEPARTMENT OF TRANSPORT

The Department of Transport (DoT) and its agents issue CTP insurance policies and collect CTP premiums on behalf of the Insurance Commission. In exchange for this service, the Insurance Commission pays a fee to DoT per transaction. For 2015, this fee was $4.23 per transaction. The total amount paid to DoT in 2015 was $24.8 million.

The partnership between the Insurance Commission and DoT provides WA motorists a ‘one-step’ process for the renewal of vehicle licences and CTP insurance in an efficient and cost-effective manner.

INDIAN OCEAN TERRITORIES

The Insurance Commission, through a Service Delivery Arrangement with the Commonwealth Government, took over the management of the Indian Ocean Territories CTP Scheme, on a fee for service basis, for an initial 12-month period from 1 July 2013. That arrangement has now been extended to 30 June 2018.

WORKCOVER

The Insurance Commission manages claims from the Employers’ Indemnity Supplementation Fund Act 1980, Workers’ Compensation and Injury Management (Acts of Terrorism) Act 2001 and Waterfront Workers’ (Compensation for Asbestos Related Diseases) Act 1986. Claims management expenses and claims payments made, which predominantly stem from the collapse of the HIH Group of Companies in 2001, are reimbursed by WorkCover as per the Employers’ Indemnity Supplementation Fund Act 1980.

On behalf of WorkCover WA, RiskCover also manages claims lodged against WorkCover WA’s General Fund (mainly for injured workers of uninsured employers) on a fee for service basis.

WESTERN AUSTRALIA POLICE

Online Crash Reporting

The Online Crash Reporting Facility (OCRF) is a joint initiative of the Insurance Commission and Western Australia Police, with the Insurance Commission providing customers with an efficient and convenient means of reporting crashes. The facility is a good example of inter-agency cooperation. No police station visit is required, saving people time and police resources.

Former Police Officers

At the request of the Police Commissioner under the Police (Medical and Other Expenses for Former Officers) Act 2008, the Insurance Commission manages claims lodged by former Police Officers and Aboriginal Police Liaison Officers who suffered injuries during service and require medical and other expense support after leaving the Western Australia Police. RiskCover manages these claims on a fee-for-service basis.


3. PERFORMANCE

3.1 Insurance CommissionThe Insurance Commission’s profit before income tax (excluding RiskCover) of $265.8 million was better than the targeted profit of $156.7 million, with revenue in excess of $1 billion and expenses of $734 million.

The 2015 financial result was considerably better than the profit before tax delivered in 2014 of $99.5 million. The main reason for the increased 2015 result is the $213.6 million turnaround in CTP underwriting performance compared to 2014. This was due to a reduction in claims payments of $40.7 million in 2015 and a smaller increase in future claims costs of $40.9 million, when compared to 2014. In 2014, there was an increase of future claims costs to be paid of $175.8 million.

Gross investment income for the year was $402.3 million, with the majority of that return attributed to strongly performing international equity markets (22.4% return) and alternative asset investments (13.6% return).

The Insurance Commission’s solvency is better as a result of these investment returns. While a solvency ratio for the Insurance Commission at 141% is a positive result that is on the basis of only a 75% probability that the Insurance Commission is able to meet its future claims payments. Most other insurers operate at a 90% probability, which ensures sufficient assets are available to meet the impact of a one in 10 year event. At a 90% probability, the solvency rate of the Insurance Commission is 136%.

3.1.1 Insurance Commission Outcome and Key Performance IndicatorsThe Office of the Auditor General audits the Insurance Commission’s key performance indicators (KPIs) annually. Other important indicators providing a broader perspective of the Insurance Commission’s performance are also included in this report.

The Insurance Commission has a combination of effectiveness KPIs and efficiency KPIs to measure its performance against the following outcome:

Outcome 1 To have sufficient financial resources to be able to meet its commitments

Due to the relative size of the TPIF, some Insurance Commission efficiency KPIs (net loss, net expense and net combined ratios) are reported based solely on that Fund’s result as it is by far the largest Fund operated by the Insurance Commission. The TPIF therefore drives the financial results of the Insurance Commission.

EFFECTIVENESS KPI - RETURN ON TOTAL ASSETS (%)

This KPI is calculated as the Insurance Commission's profit/(loss) before income tax (expense)/benefit divided by its total assets (sum of total assets at start of financial year and end of financial year divided by two) and is expressed as a percentage. This KPI measures how well the Insurance Commission is using its assets to produce income.


2012 2013 2014 2015

-10

-5

0

5

10

15Return on Total Assets (%)

%

The profit before income tax of $265.8 million was better than the targeted profit of $156.7 million. Average total assets improved by $342.1 million (8.3%), primarily due to the increased value of investment assets.

EFFECTIVENESS KPI - INVESTMENT ROLLING 7-YEAR RETURN (%)

This KPI calculates the long-term investment performance, measured over a rolling seven-year period as a percentage (on a per annum basis) of the amount of money invested. This KPI measures whether investment returns have achieved the Insurance Commission's long-term Consumer Price Index (CPI) plus 3.5% investment objective.

2012 2013 2014 20150

2

4

6

8

10

12Investment Rolling 7-Year Return (%)

%

The investment rolling 7-year return was 7%, above the target estimate of 5.9% and above the actual CPI plus 3.5% outcome of 5%. The increase in the rolling 7-year return reflects one of the negative performance years following the Global Financial Crisis dropping out of the calculation period.


EFFECTIVENESS KPI - ANNUAL INVESTMENT RATE OF RETURN (%)

This KPI calculates the amount of revenue/(loss) the Insurance Commission’s investment strategy generates over the financial year as a percentage of the value of the opening investment assets. This KPI measures the Insurance Commission’s performance compared to a specific market-related benchmark. The benchmark is a mix of Australian and global share market, fixed interest and property indices.

2012 2013 2014 201502468

10121416

Annual Investment Rate of Return (%)

%

The annual investment rate of return for 2015 of 9.7% was significantly above the target of 6.2% as central banks continued stimulatory monetary policies, pushing asset prices higher. Global Shares were the stand out performer (22.4%), followed by Alternative Assets (13.6%), Property (9%), Australian Shares (6.2%), Fixed Interest (3.9%) and Cash (3.2%).

EFFECTIVENESS KPI - SOLVENCY LEVEL (%)

This KPI calculates total assets as a percentage of total liabilities for the Insurance Commission. This KPI measures the ability of the Insurance Commission to meet its long-term financial obligations as they fall due.


2012 2013 2014 2015110

115

120

125

130

135

140

145

Solvency Level (%)

%

The solvency level of 136% is lower than the target result of 137.9% for the financial year. This was due to the higher than forecast increase in outstanding claims liabilities, albeit offset by the stronger than forecast investment returns that produced an increase in the value of the Insurance Commission's investment assets.

EFFICIENCY KPI - INVESTMENT MANAGEMENT EXPENSE RATIO (%)

This KPI calculates the total management costs (investment manager fees, custodian fees, investment advisor fees, Investments Division administration fees, legal fees and audit fees) as a percentage of the average asset value (calculated as an average of the 12-month end valuations) of the Insurance Commission's investment portfolio. This KPI is a standard industry measure of the Insurance Commission's efficiency in managing its investments.

2012 2013 2014 20150.00

0.10

0.20

0.30

0.40

0.50

0.60Investment Management Expense Ratio (%)

%


The investment management expense ratio of 0.53% for the year exceeded the target of 0.46% as the growth in total investment management cost was boosted by performance fees paid to AMP.

3.2 Compulsory Third Party Insurance TOTAL CLAIMS TOTAL CLAIMS PAID UNDERWRITING

LOSSDECREASE IN CLAIMS PAID

3,478 $453.1M $15.1M 8.2%

The CTP Division recorded an underwriting loss of $15.1 million for 2015 compared to a loss of $228.8 million in 2014.

This improvement in financial performance was primarily due to a smaller movement in the outstanding claims liabilities of the TPIF at 30 June 2015 following actuarial review. A negative movement of $40.9 million in the net outstanding claims provision was recorded in 2015 compared to a negative $175.8 million movement in 2014.

Despite positive financial results in 2015, actuarial and investment forecasts are both highly sensitive to external influences outside the direct control of the Insurance Commission. For example a 1% movement in inflation or discount rates has a $58 million impact on the CTP Scheme’s outstanding claims liabilities. The Insurance Commission therefore remains mindful of achieving and sustaining an appropriate capital adequacy position.

The CTP Scheme’s outstanding claims liabilities are calculated based on a 75% probability of sufficiency (PoS). The PoS is estimated taking into account potential uncertainties based on actuarial assumptions and statistical modelling. Increasing the PoS of outstanding claims liabilities being able to be met to 90% (as required by private insurers regulated by the Australian Prudential Regulation Authority) would increase outstanding claims liabilities by $128 million and reduce the solvency level of the TPIF from 141.9% to 135.2% in 2015. This would also reduce the likelihood of not having a sufficient outstanding claims provision from one in four years to one in 10 years and is therefore a higher confidence measure of the solvency position of the Insurance Commission.

The CTP Division also benefited from reduced claims payments of $453.1 million in 2015 compared to the all-time high amount of claims payments of $493.8 million recorded in 2014. In addition to claims payments, new claims of $470.3 million were incurred during 2015.

The TPIF profit before tax was $258.9 million in 2015 which was $186.6 million better than the $72.3 million result in 2014, and exceeded the budget estimate by 80%.

CASE STUDY

CATASTROPHIC INJURY SUPPORT SCHEME

Background

In August 2011, the Commonwealth’s Productivity Commission recommended states and territories introduce no-fault catastrophic injury insurance schemes for motor vehicle crashes. Catastrophic injuries include spinal cord injury, traumatic brain injury, multiple amputations, severe burns and permanent traumatic blindness.

In October 2014, the WA Government published a Green Paper seeking public feedback on the prospect of introducing a motor vehicle no-fault catastrophic injury insurance scheme. The Insurance Commission received over 2,300 responses to the Green Paper during a 10-week consultation period.


Following this, in May 2015, the Government announced the introduction of a no-fault motor vehicle catastrophic injury insurance scheme commencing in 2016.

Western Australians catastrophically injured in motor vehicle crashes from 1 July 2016, regardless of fault, can claim for long-term care and support. The existing CTP scheme will be enhanced to ensure consistent care services are provided to all people catastrophically injured in motor vehicle crashes.

The cost of long-term care and support for an estimated 92 catastrophically injured Western Australians is estimated at an average of approximately $4 million per person. The additional insurance premium required to fund the new scheme is $99 for a family car in 2016-17.

Work underway

Legislative changes to the Motor Vehicle (Third Party Insurance) Act 1943 and the Insurance Commission of Western Australia Act 1986 are being prepared.

The Department of Transport is progressing Information Technology system changes to incorporate the new insurance on motor vehicle licence renewals.

The Insurance Commission is currently engaging with the disability and allied health service sectors to assist the scheme design, development and implementation phases of the operation of the scheme.

April 2011 Commonwealth’s Productivity Commission recommended introduction of no-fault injury insurance.

October 2014 Green Paper released for a 10-week consultation period between October and December 2014.

April 2015 Recommendation to State Government from 2,300 submissions from public, medical, legal and other stakeholder groups.

May 2015 Government announced the introduction of a no-fault motor vehicle catastrophic injury insurance scheme from 1 July 2016.

June 2015 to July 2016 Development of the no-fault motor vehicle catastrophic injury insurance scheme and legislative changes.

1 July 2016 Commence no-fault motor vehicle catastrophic injury insurance scheme.

COMPULSORY THIRD PARTY PREMIUM RATES

Actuarial analysis of the outstanding claims liabilities occurs at the end of each financial year, after the financial results for operational performance are known. Unanticipated changes in the estimates of liabilities in the actuarial forecasts can be significant, and are difficult to manage when setting budgets 18 months in advance.


The CTP underwriting loss of $15.1 million recorded in 2015 was the 15th time in 19 years the TPIF has recorded an underwriting loss. This indicates that CTP insurance premium revenues are insufficient to meet the costs of claims payments and management of the CTP scheme.

WA has the most affordable CTP insurance scheme in Australia, and has maintained this position for the past 18 years. The cost of CTP insurance in WA is under 15% of the average of one week’s wage, compared with up to 40% of one week’s wages in other states and territories.

The price of CTP premium rates are set in an endeavour to balance affordability against CTP scheme viability to ensure there is sufficient revenue to meet the current and future costs of claims for people injured in motor vehicle crashes. Successive CTP underwriting losses are not sustainable, especially in an economic environment where investment returns look likely to be lower for longer.

From 1 July 2015, WA CTP premium rates for a family car increased by 4.1% as announced in the State Budget in May 2015. The need for future increases in CTP premiums will be reviewed annually on receipt of actuarial analysis.

The graph below compares WA’s 1 July 2015 CTP premium rates for a family car to the CTP insurance premium rates in other states and territories. This graph also compares CTP premium rates (inclusive of GST and insurance duty) as a percentage of one week’s average wages in each state and territory.

WA($303)

QLD ($324)

TAS($338)

SA($488)

VIC($494)

NT($544)

ACT($600)

NSW($614)

0

100

200

300

400

500

600

700

0%5%10%15%20%25%30%35%40%45%

CTP Premiums and Proportion of Average Weekly Earnings, by Jurisdiction, 1 July 2015

Family Car Premium Proportion (%) to the Average Weekly Earnings

CTP

PREM

IUM

RAT

ES ($

)

PRO

PORT

ION

OF

AVER

AGE

WEE

KLY

EAR

NING

S

CLAIMS

In 2015, a total of 3,478 new claims were received, representing a decrease from 3,561 new claims received in 2014. This re-established the trend of decreasing new claim volumes from 2008 which was reversed briefly last year with a marginal increase in new claims compared to 2013.

Any decreases in new claims made are obviously welcomed as it is a reflection of less people being hurt in car crashes. That assists the Insurance Commission balance its financial obligations.


In 2015, the Insurance Commission paid out $453.1 million to people injured in motor vehicle crashes. The significant cost of claims paid by the Insurance Commission underpins its programs to seek fewer crashes and less serious injuries. Since its inception in the mid-1940s, the Insurance Commission has paid $7 billion to claimants injured in motor vehicle crashes. In the past three years, the Insurance Commission paid $1.3 billion of those payments.

The map (over page) shows the crash locations across the WA regions by number of claims and cost. The metropolitan area recorded the highest number of crashes (n=2,922) costing $296.4 million compared to any other WA region. The Insurance Commission managed 48 crash claims that occurred outside WA in 2015.

Crash Claims Paid

Total: 3,478 claims, $453.1m cost Kimberley: 53 claims, $22.3m cost Pilbara: 36 claims, $13.7m cost Mid-West Gascoyne: 50 claims, $10.1m cost Goldfields - Esperance: 27 claims, $9.2m cost Wheatbelt: 75 claims, $44.7m cost Metropolitan: 2,922 claims, $296.4 cost South West: 221 claims, $44.6, cost Great Southern: 46 claims, $6m cost Rest of Australia: 48 claims, $6.1m cost

Vehicle growth slowed in 2015 to 2.2% compared to 3% in each of the last 10 years. Slower vehicle growth during 2015 drove CTP revenue down by $9 million in 2015 to $525 million compared to budget of $534 million. Vehicle growth around or below 2.5% is estimated to continue in 2016.

HIGH COST CLAIMS

Over the past 12 months, 37 large loss injury claims were settled by the Insurance Commission for approximately $210 million in total costs (including interim payments made during the life of the claim). The average cost of these claims was $5.7 million per injured person.

This means that 1% of the Insurance Commission’s CTP claims contribute to over 39% of its claims costs.

While the number of motor vehicle crashes continues to decrease due to the positive work of the State Government in recent years in improving road safety, the cost of claims for people catastrophically injured in motor vehicle crashes continues to rise.

The cost of catastrophic injuries from motor vehicle crashes to the Insurance Commission will increase by about $200 million per year when the no-fault catastrophic injury insurance scheme is introduced on 1 July 2016. This is due to an increase in the number of people catastrophically injured being able to receive care and support from the Insurance Commission rather than access other support mechanisms such as personal accident, superannuation or income protection insurance, or public health and disability support, from the Disability Services Commission.

The costs of these claims will continue to place upward pressure on CTP premium rates. Any further inflation in medical and care costs could accelerate increases in CTP premium rates.


3.2.1 Compulsory Third Party Outcomes and Key Performance IndicatorsThe TPIF has a combination of efficiency and effectiveness KPIs to measure its performance against the following three outcomes.

Outcome 1 To ensure that the Fund is fully funded.

Outcome 2 To provide affordable premiums to owners of WA vehicles.

Outcome 3 To provide a claims system that treats claimants fairly and delivers equitable compensation.



This KPI calculates total assets in the TPIF as a percentage of total liabilities in the TPIF. This KPI measures the ability of the TPIF to meet its long-term financial obligations as they fall due. The Insurance Commission has a long-term objective to achieve and maintain a solvency level of not less than 125% with a target of 135% for the TPIF.

TPIF outstanding claims liabilities are calculated based on a 75% probability of sufficiency (PoS). The PoS is estimated taking into account potential uncertainties relating to various actuarial assumptions and statistical modelling techniques.

2012 2013 2014 2015110115120125130135140145150

Solvency Level (%)

%

Solvency Long Term TargetThe outcome is better than target for the third consecutive year. It reflects an underwriting loss of $15.1 million for the TPIF, more than offset by investment returns of $274 million that were 77.6% better than forecast ($154.2 million).

Increasing the PoS of outstanding claims liabilities being able to be met to 90% would reduce the likelihood of not having a sufficient outstanding claims provision from one in four


years to one in 10 years and is therefore a higher confidence measure of the solvency position of the Insurance Commission. At a 90% PoS, the TPIF solvency level is 135.2%.

EFFICIENCY KPI - NET LOSS RATIO (%)

This KPI calculates net claims incurred (claims payments and movements in outstanding claims provision) as a percentage of net premium revenue. This KPI measures the sufficiency of premium revenue compared to the cost of claims incurred. A ratio below 100% indicates the Insurance Commission received sufficient net premium revenue to meet the net cost of claims incurred. A ratio greater than 100% indicates net premium revenue was insufficient to meet the net cost of claims incurred.

2012 2013 2014 20150

20406080

100120140160

Net Loss Ratio (%)

%

The 2015 net claims incurred result is marginally below target reflecting higher than budget claims payments (4.5%) and marginally higher than forecast movement in outstanding claims provisions (2.7%). The higher than budget claims payments reflects the settlement during the year of 37 large loss claims (>$1 million). Large loss claims payments for the year account for approximately 39% of total gross claims payments made while representing approximately 1% of the total number of claims settled.

EFFICIENCY KPI - NET EXPENSE RATIO (%)

This KPI calculates underwriting and administration expenses as a percentage of net premium revenue. This KPI is a measure of operational efficiency. A lower expense ratio would indicate higher profits/lower losses being generated.


2012 2013 2014 201502468

10121416

Net Expense Ratio (%)

%

The net expense ratio is better than target. While net premium revenue was 1.6% lower than forecast, this was offset by administration and underwriting expenses being 9.8% lower than budget. This was a good result.

EFFICIENCY KPI - NET COMBINED RATIO (%)

This KPI calculates underwriting and administration expenses and net claims incurred as a percentage of net premium revenue. This KPI is a measure of underwriting profitability used to indicate how well the Fund is performing. It is the combined result of the net loss ratio added to the net expense ratio. A ratio below 100% indicates that an underwriting profit has been made, whereas a ratio above 100% indicates an underwriting loss.

2012 2013 2014 20150

20406080

100120140160

Net Combined Ratio (%)

%

The result is marginally lower than budget reflecting an underwriting loss, primarily driven by lower than expected net premium revenue (1.6%) and higher than forecast net claims incurred (0.5%). The lower than expected net premium revenue reflects changes in motor


vehicle licence renewal patterns and prevailing economic conditions affecting the volume of new vehicle purchases.

Outcome 2 To provide affordable premiums to owners of WA vehicles.

EFFECTIVENESS KPI - AFFORDABILITY INDEX (%)

The affordability index calculates the CTP premium rates for the average family car as a percentage of one week’s worth of WA's average weekly earnings. The target ceiling is to have the CTP premium rates for the average family car at or below 25% of one week’s worth of WA’s average weekly earnings.

2012 2013 2014 20150

5

10

15

20

25

30Affordability Index (%)

%

WA's CTP premium rate remains the most affordable in Australia.

EFFICIENCY KPI - GROSS EXPENSE RATIO (%)

This KPI calculates total underwriting and administration costs as a percentage of gross written premiums collected. This KPI measures how efficiently the Insurance Commission manages the WA CTP scheme.


2012 2013 2014 201502468

10121416

Gross Expense Ratio (%)

%

The result is better than target, driven by lower than forecast underwriting and administration costs. This was primarily a result of lower than budget expenditure on underwriting expenses and overheads. This was offset by higher than forecast Bell recovery costs. Gross Written Premium revenue was marginally below forecast (2.7%). This reflects changes in motor vehicle licence renewal patterns and prevailing economic conditions affecting the volume of new vehicle purchases.

Outcome 3 To provide a claims system that treats claimants fairly and delivers equitable compensation.

EFFECTIVENESS KPI - PROPORTION OF CLAIMS PAYMENTS MADE FOR THE DIRECT BENEFIT OF CLAIMANTS (%)

This KPI calculates claims payments made for the direct benefit of claimants as a percentage of the total claim payments made in a financial year. Claims payments that do not go to the direct benefit of the claimant include the Insurance Commission's legal and investigation costs ordinarily incurred in the management of a claim (approximately 10%). This KPI is a measure of the proportion of claims costs paid for the direct benefit of claimants and reflects the TPIF's effectiveness in minimising the financial hardship of claimants and delivering equitable compensation.


2012 2013 2014 201580

82

84

86

88

90

92

94

Proportion of Claims Payments for the Direct Benefit of Claimants (%)

%

The result is marginally better than target and in part reflects the settlement during the year of 37 large loss claims, most of which involve catastrophic injuries. These claims ordinarily include substantial amounts for future medical and attendant care costs.

EFFECTIVENESS KPI - TIMELINESS OF LIABILITY DETERMINATION (%)

This KPI calculates the timeliness of liability decisions for CTP claims and requires that a decision be made on claims within 25 days from the date of lodgement of the claim to ensure claimants are treated fairly.

2012 2013 2014 201560626466687072747678

Timeliness of Liability Determination (%)

%

This measure while marginally below target has been an improvement in performance in 2015 compared to prior years.

EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS PER CLAIM ADMINISTERED ($)


This KPI calculates claims administration costs divided by the number of claims administered in the period. This KPI measures the efficiency of claims administration.

2012 2013 2014 20151,000

2,000

3,000

4,000

5,000

Claims Administration Costs per Claim Administered ($)

$

While higher than the 2014 result, this measure is better than target, reflecting a higher than forecast number of claims administered and lower than forecast underwriting and administration costs.

EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS AS A RATIO OF GROSS CLAIMS PAID (%)

This KPI calculates claims administration costs as a percentage of the gross claims paid. This KPI measures the efficiency of claims administration.

2012 2013 2014 20150123456789

Claims Administration Costs as a Ratio of Gross Claims Paid (%)

%

The result is better than target reflecting higher than budget gross claims payments and lower than forecast underwriting and administration costs.


3.3 RiskCover

TOTAL CLAIMS TOTAL CLAIMS PAID UNDERWRITING PROFIT

WORKERS’ COMPENSATION

PAID FOR DIRECT BENEFIT OF CLAIMANT

15,590 $234.8M $21.6M 90%

In 2015, the RiskCover Fund achieved its first positive underwriting result in six years of $21.6 million, which was $33.9 million better than budget, and represents an $84 million turnaround since a loss of $62.4 million in 2013.

This result was primarily due to fewer new claims received in the property (1,492 less) and workers' compensation (288 less) insurance classes compared to 2014. Overall, about 2,000 fewer new insurance claims were lodged during 2015, resulting in a 22% reduction in net claims incurred compared to budget.

RiskCover claims payments also decreased from $276.5 million in 2014 to $234.8 million in 2015, a difference of $41.7 million.

Lower volumes of new workers’ compensation claims received during 2015 did not result in a reduction of workers’ compensation claims costs. Costs of workers’ compensation claims for body stress, hit by moving object, and falls, slips and trips all continue to rise well above 2013 and 2014 levels. Excluding CPI, the cost increases are due to rising wage growth of medical and allied health services that RiskCover must pay for provision of treatment and rehabilitation services to workers’ compensation claimants and an increasing trend in the severity and duration of claims.

The map (over page) shows the workers’ compensation accident locations across the WA regions by number of claims and cost. The metropolitan area recorded the highest number of workers’ compensation claims (n=3,300) costing $107.5 million compared to any other WA region. The Insurance Commission dealt with six workers’ compensation claims that occurred outside WA in 2015.

Workers’ Compensation Claims and Cost

Total: 4,574 claims, $453.1m cost Kimberley: 85 claims, $3m cost Pilbara: 126 claims, $3.5m cost Mid-West Gascoyne: 173 claims, $4.8m cost Goldfields - Esperance: 136 claims, $9.2m cost Wheatbelt: 161 claims, $3.8m cost Metropolitan: 3,300 claims, $107.5m cost South West: 404 claims, $13.9m cost Great Southern: 183 claims, $5.4m cost Rest of Australia: 5 claims, $156,400 cost Overseas: 1 claim, $83,600 cost

Investment returns of $78.9 million were $35.5 million better than budget, helping deliver a positive overall result and a $100 million profit for the RiskCover Fund. This result was an $80 million improvement from the profit in 2013.

The outstanding claims liability for RiskCover declined slightly but remains high at $634 million. Workers’ compensation gross outstanding claims liabilities represent $348 million of RiskCover’s claims liability. Total workers’ compensation payments were $144.5 million and RiskCover received 4,574 new workers’ compensation claims in 2015. In addition to claims payments, new workers’ compensation claims of $190.7 million were incurred during 2015.


RiskCover’s solvency level increased from 108.6% in 2014 to 122.1% in 2015. This solvency position enables RiskCover to maintain a prudential reserve of $74.1 million. A prudential reserve protects the RiskCover Fund against circumstances such as a one-off large or catastrophic event, or multiple large events in any one cover period, and events covered by the Fund for which reinsurance has not been obtained or is unobtainable. In 2015, the RiskCover Fund retained the first $20 million for both property and liability losses.

In 2015, RiskCover’s net assets total $162.3 million, which was $101 million better than 2014. The Australian Prudential Regulation Authority requires private insurers to hold sufficient assets to meet outstanding claims liabilities. Further work will be undertaken with the Department of Treasury next year to determine an optimal reserve for the RiskCover Fund, and whether changes to capital adequacy are required to bring RiskCover in line with the practices of private insurers.

3.3.1 RiskCover Outcomes and Key Performance IndicatorsThe RiskCover Fund has a combination of efficiency and effectiveness KPIs to measure its performance against the following three outcomes.


Outcome 2 To provide sustainable Fund contributions (premiums) to agencies insured.

Outcome 3 To provide a claims system that treats agencies and claimants fairly and delivers equitable compensation.



This KPI calculates total assets in the RiskCover Fund as a percentage of total liabilities in the RiskCover Fund. This KPI measures the ability of the RiskCover Fund to meet its long-term financial obligations as they fall due.

2012 2013 2014 201595

100

105

110

115

120

125

130

Solvency Level (%)

%

The solvency level has improved in 2015 largely due to a 20.3% increase in investment assets with investment income exceeding budget by 81.9%. This was slightly offset by a reduction in premium receivable reflecting the improvement in claims experience in the


workers' compensation class of insurance. Total liabilities increased 2.6% during the year, contained by the actuary’s view that there has been a decrease in outstanding claims liability of 2.2%.

EFFICIENCY KPI - NET LOSS RATIO (%)

This KPI calculates net claims incurred (claims payments and movements in outstanding claims provision) as a percentage of net premium revenue. This KPI measures the sufficiency of premium revenue compared to the cost of claims incurred. A ratio below 100% indicates RiskCover received sufficient net premium revenue to meet the net cost of claims incurred. A ratio greater than 100% indicates net premium revenue was insufficient to meet the net cost of claims incurred.

2012 2013 2014 201560

70

80

90

100

110

120Net Loss Ratio (%)

%

The net loss ratio has significantly improved since 2014 with a 12% decrease in net claims incurred and a 12.9% increase in net premium revenue. The decrease in net claims incurred was driven by a drop in the liability class of insurance partly offset by an increase in the costs of property class of insurance. The increase in net premium revenue was mostly driven by the workers' compensation class of insurance. The ratio is better than target primarily due to net claims incurred being 21.7% below budget.

EFFICIENCY KPI - NET EXPENSE RATIO (%)

This KPI calculates underwriting and administration expenses as a percentage of net premium revenue. This KPI is a measure of operational efficiency. A lower expense ratio would indicate higher profits/lower losses being generated.


2012 2013 2014 20154

6

8

10

12

14

16

18 Net Expense Ratio (%)

%

The net expense ratio was largely on target at 11.7% and has decreased 1.3% compared to 2014, in line with expectations. The minor variance to target is due to net premium revenue being 9.5% lower than budget as premium adjustments were booked to reflect the improving trend in claims costs for the workers' compensation and motor vehicle classes of business. Other underwriting and administration expenses were 9.3% below budget. The improvement in the estimated cost of workers' compensation and motor vehicle claims resulted in a $54.5 million premium adjustment attributable to current and prior years.

EFFICIENCY KPI - NET COMBINED RATIO (%)

This KPI calculates underwriting and administration expenses and net claims incurred as a percentage of net premium revenue. This KPI is a measure of underwriting profitability used to indicate how well the Fund is performing. It is the combined result of the net loss ratio added to the net expense ratio. A ratio below 100% indicates that an underwriting profit has been made, whereas a ratio above 100% indicates an underwriting loss.

2012 2013 2014 20159095

100105110115120125130

Net Combined Ratio (%)

%

The positive variance in this indicator compared to prior years and target reflects the underwriting profit of $21.6 million compared to a budgeted underwriting loss of $12.3


million. Total underwriting and administration expenses were 20.3% below budget largely due to a positive movement in outstanding claims. This was most prominent in the workers' compensation class of insurance where the outstanding claims movement was a favourable $13.3 million versus a budgeted adverse movement of $32.8 million. The 9.5% favourable variance to budget in net premium revenue, primarily due to the workers' compensation class of insurance, also contributed to the positive variance.

Outcome 2 To provide sustainable fund contributions (premiums) to agencies insured.

EFFECTIVENESS KPI - WORKERS’ COMPENSATION CLAIMS INCURRED PER $100 WAGE ROLL ($)

This KPI calculates the actuarial forecast cost of claims incurred in the renewal period adjusted to their present day value, multiplied by 100, divided by the total wages as declared by all clients, adjusted to their present day value. This KPI measures the effectiveness of the RiskCover Division in keeping the cost of workers’ compensation claims to a minimum.

2012 2013 2014 20150.00

0.30

0.60

0.90

1.20

1.50

1.80

Workers' Compensation Claims incurred per $100 Wage Roll ($)

$

The improvement in the indicator reflects a slowing growth in claims costs when compared to wages growth. The actuarial forecast cost of claims incurred for the 2015 accident year is 1.3% lower than 2014, while declared agency wages have increased by 4.8% over the same period.

EFFICIENCY KPI - MANAGEMENT FEES AS A PERCENTAGE OF CONTRIBUTIONS (%)

This KPI calculates the RiskCover management fee as a percentage of Fund contributions. This KPI measures the efficiency with which the RiskCover Division manages the RiskCover self-insurance scheme.


2012 2013 2014 20150

2

4

6

8

10

12Management Fee as a Percentage of Contributions (%)

%

The result has stabilised between 2014 and 2015 after a trend of reducing fund management costs in previous years. The 2015 result represents the net impact of a slight increase in fund management fees (RiskCover administration costs) of 2.2% compared to 2014, offset by a 2.8% increase in fund contributions. The variance against target is driven by fund management fees being 10% below budget.

Outcome 3 To provide a claims system that treats agencies and claimants fairly and delivers equitable compensation.

EFFECTIVENESS KPI - PROPORTION OF WORKERS’ COMPENSATION CLAIMS PAYMENTS MADE FOR THE DIRECT BENEFIT OF CLAIMANTS (%)

This KPI is calculated as workers’ compensation claims payments made for the direct benefit of claimants as a percentage of total workers’ compensation claims payments made during the financial year. Claims payments that do not go to the direct benefit of the claimant include the Insurance Commission's legal and investigation costs ordinarily incurred in the management of a claim. This KPI measures RiskCover's effectiveness in minimising the financial hardship of claimants and delivering equitable compensation.


2012 2013 2014 201587

88

89

90

91

Proportion of Workers' Compensation Payments made for the Direct Benefit of Claimants (%)

%

There has been further improvement in this indicator this year due to a continued focus on claims management practices and the strategic objective of providing fair and equitable compensation. Total workers' compensation payments increased 0.3% from 2014 while the payments that do not go to the direct benefit of the claimant (e.g. legal expenses) decreased by 1.3%.

EFFECTIVENESS KPI - WORKERS’ COMPENSATION TIMELINESS OF LIABILITY DETERMINATION (%)

This KPI calculates the timeliness of liability decisions for workers' compensation claims. WorkCover WA's best practice guideline for insurers and self-insurers suggests that a decision be made on new and recurrent claims within 17 days from the date of lodgement with the employer to ensure claimants are treated fairly.

2012 2013 2014 2015888990919293949596

Workers' Compensation Timeliness of Liability Determina-tion (%)

%


The 2015 result has remained at the 2014 level and well above target. During the year, RiskCover made liability determinations on 3,542 (2014: 3,681) workers' compensation claims with 3,312 (2014: 3,441) of those determinations made within 17 days from the date of claim lodgement. Of the 240 liability determinations not made within 17 days, the key contributing factor is a delay of claims being lodged with agencies and their subsequent submission to RiskCover.

EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS PER CLAIM ADMINISTERED ($)

This KPI calculates claims administration costs divided by the number of claims administered in the period. This KPI measures the efficiency of claims administration.

2012 2013 2014 2015950

1,000

1,050

1,100

1,150

1,200

1,250

1,300

Claims Administration Costs per Claim Administered ($)

$

The claims administration costs per claim administered are in line with expectations and have increased 16.1% from 2014. The increase compared to 2014 is primarily due to the number of claims administered decreasing by 12.8% from 2014 and being 10% below budget. Growth in claims administration costs have been contained to 1.1% compared to 2014 and are 9.3% below budget. The decrease in number of claims administered was experienced across all classes of insurance but most prominently in the property (low value and low duration claims) and workers' compensation classes, with decreases of 20.6% and 7.5% respectively. The effect of the reduction in the workers' compensation claim numbers was offset by an increase in the proportion of long duration claims that require more time per claim to manage.

EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS AS A RATIO OF GROSS CLAIMS PAID (%)

This KPI calculates claims administration costs as a percentage of the gross claims paid. This KPI measures the efficiency of claims administration.


2012 2013 2014 20150

4

8

12

16

20

Claims Administration Costs as a Ratio of Gross Claims Paid (%)

%

The increase in this indicator in 2015, against a trend of decreases in previous years, is attributable to a significant decrease in gross claims paid of 15.1% from 2014. The 2015 target was exceeded as claims administration costs and gross claims paid are 9.3% and 2.7% below budget respectively. The reduction in gross claims was led by the liability class of insurance which reduced 48.5%, mostly due to a higher level of claims paid in 2014 from the Margaret River bushfire. These claims paid were largely offset by reinsurance recoveries.

3.4 Investments TOTAL VALUE OF

INVESTMENTS INVESTMENT RETURN ROLLING 7-YEAR INVESTMENT RETURN

$4.4B 9.7% 7%

The Insurance Commission’s diversified investment portfolio delivered a gross return (before fees and expenses) of 9.7% for the financial year. This return fell marginally short of the benchmark by 0.2%. The 9.7% return was driven by strong upward movement in global share markets (22.4% return against benchmark of 23.7%), alternative assets (13.6% return against benchmark of 7.6%) and property (9% return against benchmark of 10%).

The return net of fees and expenses for the year was 9.2%. The rolling seven-year return was 7%, 1.1% above the Insurance Commission’s CPI plus 3.5% performance target. The increase in the rolling 7-year return reflects one of the negative performance years following the Global Financial Crisis dropping out of the calculation period.

LONGER TERM PERFORMANCE


Australian Shares

Global Shares

Property Aust Fixed Interest

Global Fixed In-

terest

Alternative Assets

Cash Total Port-folio

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Asset Class Performance over Rolling Three Year Period to 30 June 2015

Insurance Commission Benchmark

Over the rolling three year period to 30 June 2015, the Insurance Commission has matched its benchmark with underperformance by global shares and property being offset by strong performance in other asset classes.

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

Growth in Investment Assets from 1996 to 2015$'m

The long term growth in the Insurance Commission’s investment assets continues to trend up steadily reflecting the underlying quality, diversified and risk managed portfolio structure.

ASSET ALLOCATION

The strategic asset allocation remained unchanged during 2015. The neutral allocation to growth assets was 68% and defensive assets 32%.


Aust Shares

Global Shares

Growth Alterna-

tives

Property Aust Fixed In-

terest

Global Fixed In-

terest

CPI Bonds

Cash Defensive Alterna-

tives

0%

5%

10%

15%

20%

25%

30%

35%Asset Allocation as at 30 June 2015

Actual Asset Allocation Strategic Asset AllocationP

erc

en

tag

e

Relative to the strategic benchmark allocations, the Insurance Commission finished the 2015 financial year with the following.

Australian shares (16.5% against 20% benchmark);

Growth alternatives (4% against 5% benchmark);

Property (24.7% against 25% benchmark);

Australian fixed interest (2.8% against 11% benchmark);

Global fixed interest (3.5% against 5% benchmark);

CPI bonds (0% against 4% benchmark); and

Defensive alternatives (2.6% against 4% benchmark).

The Insurance Commission was overweight in:

Global shares (23.3% against 18% benchmark); and

Cash (22.6% against 8% benchmark).


CASE STUDY

DIRECT PROPERTY DIVESTMENT PROCESS

Background

The Insurance Commission holds a diversified $4.4 billion investment portfolio to offset its insurance liabilities. The direct property assets in its investment portfolio include:

Forrest Centre 219 & 221 St Georges Terrace, Perth;

Westralia Square 141 St Georges Terrace, Perth;

Westralia Plaza 167 St Georges Terrace, Perth;

The Shops At Ellenbrook 11 Main Street, Ellenbrook; and

Livingston Marketplace 100-104 Ranford Road, Canning Vale.

The Insurance Commission's Board decided to seek divestment of its direct property assets and ownership, to change its investment portfolio asset allocation into diverse investment classes.

On 7 April 2015, the Insurance Commission announced its intention to divest from direct property – likely to be largest ever real estate transaction in Western Australia. The sale announcement attracted significant media coverage and market interest.

To assist with the sale preparation, the Insurance Commission appointed legal and financial advisors to work closely with management. Considerable work has been undertaken during the year to prepare documentation and the assets ready for sale.

Work underway

On 30 June 2015, an information memorandum (IM) was released to bidders marking the commencement of the sale process. The IM provides potential buyers greater details about the sale opportunity and process and invited offers to bid. It is anticipated the sale process will conclude by 2015 yearend.

3.5 Fraud InvestigationsCLAIMS ASSESSED CLAIMS INVESTIGATED AND

RESOLVED TOTAL COSTS SAVED

290 113 $12M

Fraud Investigations assessed 290 CTP and RiskCover claims into possible fraudulent behaviour by claimants during the year. Of those matters, 113 were investigated and resolved.

This resulted in claims related savings of approximately $12 million in 2015. Three matters were referred to Western Australia Police for further investigation.


There were eight service provider audits completed by Fraud Investigations in 2015 resulting in two medical providers reimbursing the Insurance Commission for overcharging by approximately $85,000.

In addition, a further 175 trace and locate enquiries were conducted to facilitate debt recoveries from negligent parties from both CTP and RiskCover claims.

CASE STUDY

INVESTIGATIONS INTO ATTEMPTED FRAUD

Background

Following a motor vehicle crash, an Insurance Commission claimant exaggerated injuries and incapacity to work to obtain a greater financial gain, otherwise not entitled to. The 57-year-old male claimant made three prior motor vehicle crash claims and was identified as the negligent driver in two of those crashes. In February 2012, the claimant was rear-ended at low speed and transported by ambulance to hospital. Sir Charles Gairdner Hospital medics diagnosed him with whiplash.

Via solicitors, the claimant sought $85,000 in damages as a self-employed windscreen repairer working approximately 10 to 15 hours weekly, earning approximately $26,000 annually. He claimed the injuries limited his ability to repetitively bend and lift, prolonged sitting or standing, and working with arms raised above shoulder level.

The claimant denied having worked as a windscreen repairer throughout the Insurance Commission claim management process. He also stated he was unable to remove old windscreens or drive for more than five to 10 minutes.

Fraud Investigations found the claimant’s business advertisement and arranged replacement of a damaged vehicle windscreen. The undercover Investigator recorded the claimant repair the windscreen showing his ability to move in contrast with his claims made to the Insurance Commission and medical reports his practitioners submitted. Video evidence showed the claimant freely walk briskly, bend fully at the waist, bend over the vehicle bonnet, use both arms to pull cables/seals with force, and lift and carry a windscreen using both arms raised above shoulder level.

Work Underway

In light of the evidence, the claim settled for $0. In August 2015, Western Australia Police charged the claimant with attempted fraud carrying a maximum penalty of seven years imprisonment.


4. SIGNIFICANT ISSUES There are three significant issues impacting the Insurance Commission during 2015:

1. Bell Group Litigation and Mediation.2. Catastrophic Motor Vehicle Injury Insurance Scheme.3. Direct Property Divestment Process.

CASE STUDY BELL GROUP LITIGATION AND MEDIATION

Background

The collapse of the Bell Group (Bell) of companies in the early 1990s left the Insurance Commission with debts of over $185 million owing to it.

The Liquidators of Bell sought funding from creditors to recover Bell Group assets from 20 Australian and international banks that had exercised security over the assets.

After 18 years of litigation against the banks, funded principally by the Insurance Commission for about $200 million, the banks relinquished their claims in Bell leaving $1.7 billion with the Liquidators for distribution between creditors.

It was hoped the various creditors of Bell would cooperate to bring about a swift and equitable distribution of those funds. This has not eventuated. Mediation between creditors to allow a timely distribution of funds to creditors has been unsuccessful.

Litigation has commenced in both Australian and English courts between creditors seeking to maximise their own interests. To date, parties have spent over $500 million on Bell, but, despite recovery of $1.7 billion, no funds have yet been distributed to creditors.

The introduction into Parliament of the Bell Group Companies (Finalisation of Matters and Distribution of Proceeds) Bill 2015 by the Hon Dr Mike Nahan MLA provides a mechanism for the prompt, fair and reasonable distribution of proceeds from Bell.

Work underway

The Bill passed the Lower House in June and entered the Upper House in August 2015. If passed, creditors will likely receive funds representing a significant return on their investment within a year.

The Insurance Commission has contractual and statutory rights to pursue claims of up to $1.2 billion of the Bell Group recoveries. However, this would take years through the Courts to achieve. The Bill offers the opportunity for a faster path to resolution for all creditors, including the Insurance Commission.

Some creditors may have attempted to prevent the passage of the legislation and delay the distribution of funds to creditors. If necessary, the Insurance Commission will continue to pursue its legal rights through the courts to seek a return in a timely manner.

Catastrophic Motor Vehicle Injury Insurance Scheme.

The State Government announced the introduction of a no-fault motor vehicle catastrophic injury insurance scheme commencing 1 July 2016. The scheme will provide long-term care and support for all people catastrophically injured in motor vehicle crashes in Western Australia from 1 July 2016.


The drafting of amendments to the Motor Vehicle (Third Party Insurance) Act 1943 and the Insurance Commission of Western Australia Act 1986 are underway so the expanded motor vehicle injury insurance can be delivered.

See the Case Study in section 3.2 for further detail.

Direct Property Divestment Process

On 7 April 2015, the Insurance Commission announced it seeks to divest its direct property assets to change its investment portfolio asset allocation. There has been strong interest for the Insurance Commission’s three commercial office properties and two major retail suburban shopping centres.

The sale process has commenced and is expected to conclude by December 2015. See the Case Study in section 3.4 for further detail.


5. FINANCIAL STATEMENTS

5.1 Statements of Compliance The accompanying financial statements and accompanying consolidated financial statements have been prepared in accord with the provisions of the Financial Management Act 2006 from proper accounts and records to present fairly the financial transactions for 2015 and the financial position as at 30 June 2015.

At the date of signing we are not aware of any circumstances that would render the particulars included in the financial statements misleading or inaccurate.



DAMON DE NOOYERCHIEF FINANCE OFFICER14 September 2015

KEY PERFORMANCE INDICATORS

We hereby certify that the Key Performance Indicators are based on proper records, are relevant and appropriate for assisting users to assess the Insurance Commission of Western Australia’s performance, and fairly represent the performance of the Insurance Commission of Western Australia for the financial year ended 30 June 2015.




5.2 Financial Statements Index

PageStatement of Comprehensive Income for the year ended 30 June 2015Statement of Financial Position at 30 June 2015Statement of Changes in Equity for the year ended 30 June 2015Statement of Cash Flows for the year ended 30 June 2015Note 1 Statement of Significant Accounting PoliciesNote 2 Funds’ Financial StatementsNote 3 RiskCover Fund Financial StatementsNote 4 Revenue and IncomeNote 5 ExpensesNote 6 Net Claims IncurredNote 7 Income Tax EquivalentNote 8 ReceivablesNote 9 InvestmentsNote 10 Property, Plant and EquipmentNote 11 Investment PropertiesNote 12 IntangiblesNote 13 Deferred Premium Collection CostsNote 14 Other AssetsNote 15 Property Assets Held For SaleNote 16 PayablesNote 17 Financial Liabilities – RiskCover InvestmentsNote 18 Outstanding ClaimsNote 19 Unearned Premium Note 20 Unexpired Risk LiabilityNote 21 ProvisionsNote 22 Employee Benefit LiabilitiesNote 23 Bell Recovery ActionNote 24 DividendsNote 25 Notes to the Statement of Cash FlowsNote 26 Financial InstrumentsNote 27 Explanatory Statement – Insurance CommissionNote 28 Expenditure CommitmentsNote 29 Property Lease IncomeNote 30 Economic DependencyNote 31 Remuneration of the Board of Commissioners and Other Key

Management PersonnelNote 32 Remuneration of AuditorNote 33 Losses Through Theft, Default and Other CausesNote 34 Critical Accounting Judgements and EstimatesNote 35 Actuarial Assumptions and MethodsNote 36 Risk Management Policies and ProceduresNote 37 Events Occurring After the Reporting PeriodNote 38 RiskCover Fund Financial Disclosures


6. DISCLOSURES AND LEGAL COMPLIANCE

6.1 Ministerial DirectionsNo Ministerial directions were received during the year.

6.2 Other Financial Disclosures

6.2.1 Pricing Policies of Services Provider

CTP PERSONAL INJURY INSURANCE

To comply with section 3T of the Motor Vehicle (Third Party Insurance) Act 1943, the Insurance Commission is required to, at least once in each financial year, make an assessment of the extent to which the premium revenue, together with other income expected to be received, will be sufficient to meet the claims, costs and other expenses anticipated to arise or be incurred.

The pricing philosophy is based on regular average weekly earnings for WA inflation-linked increases, rather than irregular and large variations. Average weekly earnings is the most relevant index for personal injury schemes such as the motor vehicle CTP insurance scheme as the majority of claims costs (i.e. claims for loss of income, medical and allied health costs) are directly linked to wage inflation.

From 1 July 2015, CTP premium rates increased by 4.1%.

CTP premium rates for a family car in WA remain the lowest in Australia and have been for more than 19 years.

RISKCOVER FUND CONTRIBUTIONS

Since its inception in 1997, RiskCover’s pricing policy aims to collect sufficient contributions to meet its liabilities and administration costs. The key outcomes that RiskCover aim to achieve in setting contributions are:

equity for all member authorities;

transparency in the Fund contribution methodology;

minimum cross-subsidisation;

protection against major events; and

incentives for risk management.


6.2.2 Capital WorksIn 2014-15, the Insurance Commission invested in four internal capital works programs.

Self Insurance Risk Declaration System EnhancementsCOMPLETION DATE 28 February 2015FINAL COST $286,509The Self Insurance Risk Declaration (SIRD) system allows agencies to enter risks and other data on a secure platform on the Insurance Commission’s website. These data collected enables RiskCover to determine insurance cover requirements, agency contribution amounts and is a key input for its reinsurance program.

During the year, a new extract, transform and load tool was introduced to significantly enhance the capability of data collection, collation and management, and trend analysis and reporting with SIRD.

FoxPro Replacement EXPECTED COMPLETION DATE 31 October 2015 EXPECTED COST $940,286FoxPro has historically been the frontend access to the RiskCover core insurance system. FoxPro was outdated and unsupported by the vendor and presented a significant risk to the Insurance Commission. Replacement of the system commenced during the year and in June 2015 the replacement system, iCLAIMS went live. FoxPro will be decommissioned in late 2015.

Business Services TransformationEXPECTED COMPLETION DATE 28 February 2016 EXPECTED COST $842,873The Business Services Transformation Project will deliver automated document indexing, invoicing and information capture through optical character recognition software. These enhancements to existing systems will deliver more efficient document service processes. See the case study for further detail.

No Fault Catastrophic Injury InsuranceEXPECTED COMPLETION DATE 1 July 2016 EXPECTED COST $2,057,328The introduction of the no-fault catastrophic injury insurance scheme on 1 July 2016 requires software changes to the existing core insurance systems and new business processes to be built. This project commenced in June 2015 and will be advanced to allow the expanded insurance cover from 1 July 2016.

CASE STUDY

BUSINESS SERVICES TRANSFORMATION PROJECT

Background

The Insurance Commission annually receives and manually indexes 896,000 documents incorporating 1.45 million pages. The Compulsory Third Party (CTP) and RiskCover divisions annually process 252,000 invoices from over 2,000 service providers. Historical document growth at a rate of 1.6% per year is expected to continue.

Hard copies account for 90% of all documents received, the balance through electronic image formats. All documents are scanned and processed via manual data entry.

In November 2014, the Business Services Transformation Project commenced to deliver improved efficiencies and effectiveness in claims data collection and processing, specifically:


consolidation of RiskCover and CTP mail services and invoice processing areas;

alignment of RiskCover and CTP insurance documents handling processes; and

integration of new technology delivering processing efficiency gains and increased automated data capture capability.

The first phase of the Project went live in July 2015 and will deliver the following incremental benefits over the coming years.

2014-15 2015-16 2016-17 2017-18 2018-19Automatic indexing 0% 42.5% 56.2% 64.2% 66.4%Straight through processing of invoices

0% 56% 70% 80% 80%

Expected annual savings $0 $948,463 $1,412,014 $1,742,161 $1,923,748

Work underway

In July 2015, automated document indexing was implemented and automated invoice entry is scheduled for late 2015.

From early 2016, service providers will be able to upload invoices online providing financial savings to the Insurance Commission and those providers as well as reduced timeframes for invoice payment.

6.3 Governance Disclosures

6.3.1 Employment and Industrial RelationsThe Insurance Commission’s Statement of Corporate Intent (SCI) and Strategic Development Plan (SDP) articulate the importance the organisation places on a skilled and engaged workforce. The Insurance Commission’s workforce is employed under section 12 of the Insurance Commission of Western Australia Act 1986. Remuneration and other working conditions are determined by the Insurance Commission, subject to the Government Officers (State Government Insurance Commission) Award 1987 and the Government Officers (Insurance Commission of Western Australia) General Agreement 2014.

The Insurance Commission operated within the full time equivalent (FTE) budget throughout the year and as at 30 June 2015, the total FTE count was 354.6.

A Workforce and Diversity Plan that is linked to the SCI and SDP forecasts internal labour demand and supply together with strategies to ensure the right people are recruited with the right skills, when the business requires them.

STAFF PROFILE OF THE INSURANCE COMMISSION

The Insurance Commission strives to be a ‘great place to work’ and achieved an employee retention rate of 92% for the year, compared to 90% in 2014. The five year average retention rate is 90%.

The Insurance Commission continues its commitment to attracting and retaining a diverse and talented workforce, focussing particularly on women in senior leadership and youth; areas where improvement is required. Due to our positive staff retention rate, effecting change will be gradual and therefore a long-term commitment.


Workplace Diversity

Women 57%Men 43%Indigenous Australians 0.75%People with disability 2.3%Youth 2%Cultural diversity 19.6%Women in senior leadership 9.5%

WORKFORCE DEVELOPMENT

Attracting and retaining talent is core to our successful delivery of insurance services.

The Insurance Commission is a member of the Personal Injury Education Foundation (PIEF) providing personal injury management education and professional development opportunities to our staff and promoting the insurance profession to prospective employees.

The Insurance Commission's Corporate Training and Development Plan details our commitment to training and development of our employees. Insurance and personal injury management workshops conducted by the PIEF were attended by over 90 of our Claims Officers during the year. Support was also provided to employees to complete the nationally recognised qualification with PIEF or the Australian and New Zealand Institute of Insurance and Finance.

Enhanced performance development processes were implemented during the year to improve resource planning and to facilitate employee career development.

6.3.2 Contracts with Senior OfficersAt the date of reporting, no senior officers, or firms of which senior officers are members, or entities in which senior officers have substantial interests, had any interests in existing or proposed contracts with the Insurance Commission other than normal employment contracts of service.

6.3.3 Board and Committee Remuneration and AttendancePremier’s Circular 2010/02 – State Government Boards and Committees, requires that Board remuneration is reported.


Remuneration and Attendance of Commissioners

POSITION NAME

BOARD ATTENDANCE AT 8 SCHEDULED MEETINGS

AUDIT AND RISK COMMITTEE ATTENDANCE AT 7 SCHEDULED MEETINGS

GROSS ANNUAL REMUNERATION*

Chairman, Member of Audit and Risk Committee

Frank Cooper 8 7 $98,273

Deputy Chairman

Ainslie van Onselen 7 N/A $73,696

Commissioner, Chairman of Audit and Risk Committee

John Scott 8 7 $49,137

Commissioner Terry Agnew 8 N/A $49,137Commissioner Stephen Boyle 8 N/A $49,137Commissioner, Member of Audit and Risk Committee

Dr Christopher Kendall 7 5 $49,137

Chief Executive, Commissioner ex officio

Rod Whithear 8 7 $387,464

* Includes superannuation and Fringe Benefits Tax

6.3.4 Compliance with Public Sector Standards and Ethical CodesSection 31(1) of the Public Sector Management Act 1994, the Public Sector Commissioner’s (PSC) Instruction (Number 7) – Code of Ethics and the Insurance Commission’s Code of Conduct (the Code) requires that the Insurance Commission is committed to continuous improvement of its governance function and reporting on the extent to which it has complied with the public sector standards and ethical codes during the year.

Existing controls provide reasonable assurance of compliance with the public sector standards and ethical codes. The Code is integrated into the induction program and available to existing staff through an intranet. An internal audit function is maintained as part of a best practice assurance approach. Awareness training is undertaken for key aspects of the Code, including the PSC’s Accountable and Ethical Decision Making training.

One claim for a breach of public sector standards (recruitment and appointment) was lodged during 2014-15. The claim was later withdrawn.

6.3.5 Market Research and Advertising ExpenditureComplying with section 175ZE of the Electoral Act 1907, the Insurance Commission incurred $68,262 total expenditure for 2015 to advertise job vacancies and to undertake client surveys for RiskCover and to'advertise CTP insurance premium rates.

Market Research and Advertising Expenditure

TYPE ORGANISATION TOTALAdvertising Agencies Derwent Executive, Seek and

State Law Publisher.$12,994

Market Research Painted Dog Research. $55,268Total $68,262


* No expenses incurred for polling organisations, direct mail organisations or media advertising.

6.3.6 Disability Access and InclusionThe Insurance Commission is committed to raising awareness of access and inclusion issues and improving our services to the community.

Our Disability Access and Inclusion Plan (DAIP) 2014-17 provides the framework and practical strategies to improve access and inclusion for people with disability. The seven DAIP outcomes and our 2015 actions against each are listed below:

Outcome 1: People with disability have the same opportunities as other people to access the services of, and any events organised by the Insurance Commission.

Action: Development and implementation of accessible event procedures for events organised by the Insurance Commission.

Action: Completion of a customer survey for agencies insured by RiskCover to establish access requirements for people with disability.

Outcome 2: People with disability have the same opportunity as other people to access the buildings and facilities of the Insurance Commission.

Action: Commissioned a disability access audit of the Insurance Commission’s Forrest Centre office building resulting in an upgrade of access infrastructure in the car park and walkways to the building. Outcome 3: People with disability receive information from the Insurance Commission in a format that will enable them to access the information as readily as other people are able to access it.

Action: Commencement of upgrade of the Insurance Commission’s website to meet accessibility guidelines. Outcome 4: People with disability receive the same level and quality of service as other people from Insurance Commission employees.

Action: Delivered customer service training for the core insurance divisions of the Insurance Commission to promote awareness of disability access and inclusion.

Action: Information sessions held with telephone operators and claims officers on the National Relay Service to improve customer service delivery to people with hearing or speech impairments.

Action: Addition of disability access and inclusion plan in employee inductions.

Outcome 5: People with disability have the same opportunities as other people to make complaints to the Insurance Commission.

Action: Reviewed the Insurance Commission’s customer feedback documentation to improve service delivery for people with disability.

Outcome 6: People with disability have the same opportunities as other people to participate in any public consultation that the Insurance Commission may undertake.

Action: The DAIP was published on the website of the Insurance Commission and includes details on public consultation.


Outcome 7: People with disability have the same opportunities as other people to obtain and maintain employment with the Insurance Commission.

Action: Ongoing review of recruitment processes to minimise barriers to employment for people with disability.

Action: Ongoing assistance and support provided to employees with disability.

6.3.7 Recordkeeping PlanSection 19 of the State Records Act 2000 requires the Insurance Commission to maintain a Recordkeeping Plan approved by the State Records Commission. The Recordkeeping Plan and associated training program was revised in 2015 as part of a routine efficiency and effectiveness review of the Insurance Commission’s recordkeeping systems. Recordkeeping training continues to be undertaken for all new staff via an induction program which details employee roles and responsibilities for compliance with the organisation’s recordkeeping plan.

6.3.8 Substantive Equity Our employment practices align with the PSC’s Employment Standards and are designed to be transparent based on the principles of merit and equity.

6.3.9 Occupational Safety and HealthThe Insurance Commission has a longstanding high level commitment to maintain a positive safety culture in which our Occupational Safety and Health (OSH) systems do more than just aim for compliance. Our OSH goal is to ensure no employee, contractor or visitor is harmed at work. Our OSH Policy and OSH Business Plan were reviewed in 2015.

The Insurance Commission’s OSH Committee performs an important role providing a forum for employees to be updated on OSH matters.

Six workers’ compensation claims were lodged during the year, two of which resulted in lost time. Injured employees are supported in their return to work under the Workers’ Compensation and Injury Management Act 1981.

Performance against the targets of the PSC’s Circular 2012-05: Code of Practice: OSH in the WA Public Sector are listed below.


Occupational Safety and Health Reporting

ACTUAL RESULTS RESULTS AGAINST TARGETMEASURE 2014 2015 TARGET COMMENT

Number of fatalities 0 0 0 Achieved.Lost time injury and/or disease incidence rate 0.58 0.56 0 or 10%

reduction Slight improvement.

Lost time injury and/or disease severity rate 0 50% 0 or 10%

reductionNot achieved.

Graduated return to work program in place.

Percentage of injured workers returned to work:

(i) within 13 weeks 100% 50% Actual result Actual result.

(ii) within 26 weeks N/A 50%

Greater than or equal to 80%

within 26 weeks

Not achieved. Graduated return to

work program in place.

Percentage of managers trained in occupational safety, health and injury management responsibilities

13% 13% Greater than or equal to 80%

Not achieved, however 73% trained in OSH but

not completed injury management training.


icwa.wa.gov.au

Insurance Commission of Western Australia

Forrest Centre, 221 St Georges TerracePerth WA 6000

GPO Box U1908 Perth WA 6845Telephone: +61 8 9264 3333 Facsimile: +61 89264 3564

Email: [email protected]


Documents

Introduction - Insurance Commission of Western Australia Web viewThe Board’s Dividend Policy and the . Insurance Commission of Western Australia Act 1986. ... Historical document