A Victorian business says it will be forced to put itself under pressure to come up with all the funds needed to pay a dramatically higher WorkCover insurance policy this year, after being notified that paying off the annual policy in instalments would increase the total amount owed by 17%.
Joel Farnan is the managing director of Zeally Bay Sourdough, a bakery business based in the popular Victorian surf coast town of Torquay.
He has spoken out about the lack of answers available about why his business’ annual WorkCover insurance policy has jumped by a third this year, and why the option to pay the bill in instalments amounts to 17% more than if the bill was paid off as a lump sum.
Farnan told SmartCompany his business was budgeting for its annual WorkCover bill based on last year’s cashflow calculations, and “didn’t have much warning” when this year’s account arrived with a premium he says has jumped 33% compared with last year.
While the business believes the increase relates to an industry specific rate that has gone up for the bakery sector, Farnan says the exact way the bill has been calculated is unclear.
Farnan says the company is likely going to have to find the extra funds to pay off the increase in full because, while the bill gives an option to pay on a quarterly basis, the amounts listed for those quarterly instalments option mysteriously amount to 17% more than if the premium was paid off in one go.
“There’s no explanation as to why this is: with this one, it seems to be punitive [for paying in instalments],” Farnan says.
The business says the increases have essentially wiped out any benefit it was receiving from a payroll tax discount it is entitled to as a regional business.
The WorkCover policy in question is underwritten by insurer CGU and carries the WorkSafe Victoria logo. WorkSafe Victoria advised SmartCompany that the rates businesses must pay for these policies are set at the start of the financial year and fixed for that year.
A company’s rate is calculated through a formula that includes looking at the rate of claims across each industry in the previous year. The rate for an individual business is then determined based on the remuneration it pays employees overall.
WorkSafe says all businesses with premiums of more than $1000 can pay this as a lump sum or in instalments, with a 5% discount offered for an early payment and a 3% discount if a business pays in full on time.
“The amount payable does not increase if the business elects to pay in instalments,” a spokesperson for WorkSafe Victoria told SmartCompany.
However, Farnan says his company has crunched the numbers and Zeally Bay is being asked to pay more each quarter if it chooses to make instalment payments.
Documents seen by SmartCompany show the quarterly amount payable by the business would result in thousands more being paid each quarter if this option was chosen instead of a lump sum.
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The documents present three payment options for the business, including two that show a 5% and 3% discount, however, the quarterly payment option lists four equal amounts that, when combined, add up to 17% more than if the policy was paid in full.
WorkSafe says it cannot comment on specific policies, but there should be no reason charges are higher in this case.
“WorkSafe does not charge higher premiums for employers that pay in quarterly or monthly instalments, however sometimes an adjustment arising from a prior year can be included for payment in one of the instalments in the current year. For example, this can occur if the amount of rateable remuneration an employer estimates it will pay to workers at the start of a financial year differs significantly from the actual amount they pay during that year,” a spokesperson says.
Farnan says it’s unclear from the itemised bill for the policy exactly how the amounts have been calculated, and says while his company obviously wants to be compliant with its obligations, it will be forced to “put ourselves under as much strain as possible” to pay off the bill in full and avoid the higher rate.
He says the insurance scheme makes it unclear whether his company is actually dealing with WorkSafe Victoria or the insurance firm CGU, and the way premiums are calculated feels a bit too “one size fits all”.
He believes “a more tailored solution to each business” would be appropriate because, as it stands, small businesses can exhibit strong safety records and still have to pay increasing premiums, but this isn’t the case with other kinds of insurance policies.
“For other insurance that you get, like driving, it’s tailored to your driving history, as well as the vehicle you are driving and the area you live,” he says.
SmartCompany contacted CGU to clarify whether it is responsible for setting any rates for payment of WorkCover policies, and was referred back to WorkSafe Victoria, with the insurer saying WorkSafe sets the policy and pricing strategy.
Large increases must be explained: Carnell
Small Business and Family Enterprise Ombudsman Kate Carnell urges any businesses with concerns about their insurance bills and how they are calculated to contact her office, saying it is “essential insurers are very clear about what’s happening” when they outline the amount SMEs have to pay.
“Small businesses understand this [paying policies] is something they’ve got to do, but over and above that, large increases have to be explained in depth,” Carnell tells SmartCompany.
Carnell says it’s important for insurers to explain exactly how bills are calculated, because any suggestion that paying instalments would attract more than a very minor increase in the overall fee “seems like gouging”.
“Most importantly, these things have got to be fair, so we need better explanation, better information, and more capacity for small businesses to manage these payments inside of their cashflow,” she says.
WorkSafe Victoria responds
Peter McNally, director of insurance for WorkSafe Victoria has provided the following response to the concerns raised in this article.
“WorkCover premiums are calculated using a formula based on the amount an employer pays out each year in wages, salaries, superannuation and other employee benefits, and the likelihood of workers suffering an injury in the industry in which the company operates. For businesses that pay out more than $200,000 in wages and benefits to workers each year, WorkSafe also takes the individual employer’s claims history into account.
“At the start of each financial year, businesses are asked to estimate how much money they will pay out to employees in remuneration that year. WorkSafe calculates their premium on this amount. After the end of each financial year, they are then asked to report to WorkSafe how much money they did actually pay out to workers in the previous financial year.
“If the actual amount differs significantly from the estimate, an adjustment is required. Sometimes this adjustment results in a premium increase, sometimes a premium decrease. WorkSafe applies this adjustment to the next available account. In the case of businesses paying by instalments, this new amount applies to the next instalment they pay.
“WorkSafe itemises its charges on the policy statements it sends out and, if adjustments have been made, these are also itemised on the statement. WorkSafe is always happy to answer any questions employers may have about their premiums, and policy holders should feel free to contact us … or their insurance agent.”
*This article was updated at 2pm on Monday, August 21, to include a full response from WorkSafe Victoria.
Do you know more? Have you had a similar experience with insurance for you business? Email [email protected].