Understanding workers compensation premiums in the NT

The Northern Territory workers compensation scheme is underwritten by private insurance companies.

The Return to Work Act 1986 (the Act) does not regulate minimum or maximum premiums or establish advisory premiums. Insurers operate with commercial independence. There is no power under the Act for the Northern Territory Government to control, influence or review premiums charged for an individual business. The price is determined by the insurer, having regard to assessment of the risk of the individual business they are being asked to insure and the historical experience for all businesses of the same type.

Competition between insurers will mean that the price between insurers will differ and it is important to shop around. Insurance brokers will assist employers in this process.

A good claims record in conjunction with good workplace safety practices may influence the premium to be paid. Conversely employers with a frequency of claims and/or claims with high costs may be charged more than the insurer’s standard or ‘book’ rate. A consideration
for the insurer is whether any steps have been taken to prevent injuries.

Premiums are worked out based on the industry type, claims history, payroll and number of employees. The premium is calculated at the commencement of the policy period based on the remuneration (generally wages) that the employer estimates will be paid to their workers in the coming 12 months. A rate for every $100 in remuneration is applied to produce a premium.

This premium is then recalculated at the expiry of the policy period based on the actual remuneration (wages) paid during the insurance period. A credit will be paid, or extra premium will be charged to the employer if the remuneration differs from the prior estimate.

Example of premium calculation

Builder (residential)

Adjustment at end of insurance period

In this example the business is charged $15,400 at the commencement of the insurance period and an additional $3,500 plus GST at the end of the policy period.

In the above scenario the business might be looking at a renewal premium of $19,250 (incl. GST) plus the adjustment of $$3,850 (incl. GST) owed for the expiring period. This gives the appearance of a premium increase but in fact the premium rate has not changed at all.

Multiple business activities

It is not uncommon for a business in the Northern Territory to be involved in more than one industry activity. All activities should be disclosed to the insurer to help determine the industry category to be applied for that risk. It will be a judgement for the insurer as to which industry category will apply. Whilst the business will generally be classified on the main activity an exceptionally risky activity may influence the insurer’s decision to rate on the more risky classification.

Directors (companies)

It is not a requirement that Directors be covered by the company. It is optional. Directors may be covered if an amount is withheld under PAYG provisions and the director’s name, estimated remuneration as well as the nature of the employment are disclosed to the insurer. Family members (sole traders and family businesses). Family members do not have to be covered by the employer. It is optional. Family members may be covered if the person’s name, nature of employment and estimated remuneration are declared to the insurer.

Understanding premium increases

Premiums can increase for a number of reasons:

• wages estimated are more than the year before
• due to claims that have been made
• due to a change in the type of business activity the business is engaged in
• due to a general increase applied to all customers by an insurer
• due to an insurer increasing the rate for a specific type of business activity (all businesses of the same type)

What options are available

First of all, understand why the premium has increased.

• The insurer broker can explain if it was a general increase, a change in remuneration declared or if an increase was imposed due to claims.
• If the increase was due to claims, can a case be made to show that there are now systems or controls that minimise the risk of an injury happening again?
• Work with the insurer to minimise the cost of the claim that has been made - has assistance been given by providing suitable work for the injured worker.
• Check with the insurance broker that the business activity has been correctly categorised.
• Shop around for the most competitive price.
• Explore the option of premium instalments.