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ACC’s future

  • October 18th, 2009

Will insurers come back to compete with ACC if ACT obliges National to deliver on its own policy of reintroducing contestability? Or will they be too wary of investing in the set-up then having to write it all off again, like last time?

I helped in drafting the reform law in 1998. I think all of us who worked on it were surprised by its success, not only in waking up the Corporation and lowering premiums, but even in dropping accident rates. I don’t think there has ever been an entirely convincing explanation of that drop, because it seemed too quick to have a cause and effect relationship with the reforms. At last our rates had headed in the direction of Australia’s lower rates.

The reform was reversed because someone made a silly campaign promise. Labour MPs had no pride in their work as they delivered on their promise. Cullen had not by then discovered his phrase "the ideaological burp" but I think he might admit that the repeal was worse than a burp – perhaps it was an ideological fart. I remember a discussion with a couple of them about the success of the reforms, the benefits in cost terms, the apparent benefits in tems of reduced pain and loss as accident rates dropped. They said that when National reinstated contestibility no one would make a silly promise to repeal it again.

We shall see.

I hope that ACT insists on committment to some of the elements of the reform that National was too timid to allow last time. There were several changes dropped that could help make ‘no fault’ more robust for the long term (to put further out of contention any restoration of tort).

Among them must be an option for workers and earners generally to elect a higher than zero deductible. All sensible insurance has deductibles, to save on administration costs for trivial claims that would be better dealt with directly and to reduce the moral hazard of entitlements with no co-payment obligation at all on the person suffering the "loss". At the least people should be permitted to choose to cover their own minor accidents and perhaps up to the first month off work, in return for a good share of the resulting savings to the ACC/insurer.

And the law needs some extra principles written in. Among them should be:

  • another go at sorting out the boundaries with crime and criminal law reparations. The courts are busy recreating the equivalent of tort liability, but without the common sense of tort, by directing payments in HSE cases to the "victims". Some of the worst results of US style tort risk aversion are now affecting New Zealand, as land-owners close off access, employers deprive employees of discretion and recreational choices are restricted in the interests of protecting against hindsight court judgments that ignore individual choices and responsibilities.
  • a requirement to show that counselling and other feelgood "treatments" help more than they damage. For example there is research evidence that counselling for one off trauma may harm. It may diminish the normal protective loss of short term memory. Rehearsing and  dwelling on an incident may instead cement  it into long term memory. "Harden up and forget about it" may be the best therapy.
  • new mandatory prosecution provision to apply to Directors and other people in control of insurers (including ACC) if they lie like Labour Ministers about the financial condition and the provisions for coverage. They perverted a scheme that has always been vulnerable to serious boundary arguments, into a welfare election bribe..

Comments

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[…] Stephen Franks blogs on his experiences with ACC reform. […]

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  • Luke H
  • October 27th, 2009
  • 10:52 am

even in dropping accident rates. I donít think there has ever been an entirely convincing explanation of that drop, because it seemed too quick to have a cause and effect relationship with the reforms.

I wonder that perhaps there were less fake accidents – people seem quite inclined to “throw their back out” and sponge off the state, whereas a private insurer has more of an incentive to make sure people are not malingering.

Also, employers might cease to report minor accidents in case it increases their premiums.

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  • Steve
  • November 1st, 2009
  • 7:48 pm

Your blog is fascinating. But, you have not posted for fourteen days.
Lift your game.
Your readers appreciate your efforts.

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  • Jim Maclean
  • November 2nd, 2009
  • 12:25 am

Finally I can find something that I disagree with Stephen on! The principle of insurance is many people paying a little so the few can receive the greater amount at the time they require it. The cost is determined by the cost of accidents plus the cost of administration. When privatized the cost is determined by accident costs, administration costs and business profit as well. The theory is that the profit motive will spur greater attention to detail and better management which will result in a lower cost overall even allowing for the extra cost (profit) otherwise involved. My experience of insurance companies over the last several decades is that in their drive for “efficiency” can all too easily turn into clever tricks to avoid paying legitimate claims in full, to deny cover to the less lucrative clients and to continually try to “cherry pick” the more lucrative ones to the general detriment of the government (taxpayer) who must pick up the tab for the rest.
America’s health insurance companies ferocious campaign to frighten citizens away from moving to a “public option” (as exists in virtually all other western democracies) serves I believe as a warning to where privatization can ultimately lead and the electricity “reforms” here in New Zealand put the lie once and for all to the notion that private enterprise will always do it better and cheaper.
It did seem that the previous experiment with ACC privatization options had the potential for savings and better management without any real downside, but doesn’t the thin end of the wedge always appear similarly innocuous?
I simply do not believe private enterprise will always do a better job than a government organisation if that organisation is properly led, with good internal and external communication and well trained representatives.

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