The Government is backing away from plans to change the Accident Compensation Corporation to allow competition from private insurers, because of concerns it will drive up costs for small and medium businesses and the taxpayer.
Former ACC minister Nick Smith last year confirmed the Government intended going ahead with plans to open up the Work Account to competition from private insurers, a policy that resulted from its coalition with Act New Zealand.
Dr Smith went on to produce a cabinet paper in which it was suggested ACC increase work account levies to create a level playing field for private insurers which - unlike the ACC - have to pay tax and turn a profit.
It is understood the Government was also considering making the ACC subject to the same prudential capital requirements as other insurers. Those rules, from which the ACC is exempt, stipulate what cash and assets insurers must hold in reserve.
However, it is now understood the Government is unlikely to make changes to ACC aimed at providing the level playing field.
"The political bottom line is it wasn't going to be possible to introduce competition on a basis that was [a] level playing field between private sector and public without substantial increases in premiums or levies, particularly for small and medium employers," a well-placed source said.
It is understood the costs associated with reforming the ACC were not the only factor likely to result in higher levies or premiums for employers. The insurance industry worldwide has to rebuild capital reserves depleted by large losses stemming from a string of catastrophes, pushing up premiums.
While there were concerns small employers may pay more, private insurers were expected to provide cheaper cover to large employers.
However, large firms can already manage their own workplace accident cover through the ACC's accredited employer programme.
ACC Minister Judith Collins said suggestions the Government was moving away from competition for ACC were "extremely speculative" although she believed there were better options than Dr Smith's.
A "third option" was likely to be made public next month if approved by the Cabinet.
- Adam Bennett
