The New Zealand Government
October 22/2003
The Accident Compensation Corporation (ACC) administers New Zealand’s accident compensation scheme, which provides accident insurance for all New Zealand citizens, residents and temporary visitors to New Zealand.
History of ACC
Early 1900s – New Zealand leads the way in workers’ compensation and motor vehicle insurance
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New Zealand was an early leader in providing compensation for work injuries. We were also one of the first countries to recognise the social and financial consequences of accidents involving uninsured motorists.
In 1900 New Zealand followed the example set by Bismarck in Germany twelve years earlier, and introduced a ‘no fault’ workers compensation system. The Worker’s Compensation Act lasted (with some changes) until 1974, and provided injured workers with weekly benefits and, in case of death, compensation for dependents.
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‘Injury arising from accident demands an attack on three fronts. The most important is obviously prevention. Next in importance is the obligation to rehabilitate the injured. Thirdly, there is the duty to compensate them for their losses.’
Sir Owen Woodhouse in the 1967 Royal Commission report from which the ACC scheme was born.
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The Act required that employers take out insurance to cover themselves for injuries to employees. Benefits provided by the Act were small and could only be paid for six years from the date of injury. Injured workers also had the right to sue an employer for negligence.
The Act didn’t cover non-work injury, or motor vehicle injury.
In 1928, under the Motor Vehicles Insurance (Third Parties Risk) Act, a compulsory third party motor vehicle accident insurance scheme was introduced. The scheme made sure that the victims of motor vehicle accidents could claim damages for personal injury.
1967 − The Woodhouse Commission recommends a ‘no-fault’ accident compensation scheme
In 1967, as a result of complaints about the inadequacy of workers’ compensation benefits, a Royal Commission was established to report on workers’ compensation. The commission produced the well-known Woodhouse Report, named for its chairman Mr Justice Woodhouse (now the Right Honourable Sir Owen Woodhouse).
The report recommended a completely new ‘no-fault’ approach to compensation for personal injury. It recommended a scheme to cover:
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All motor vehicle injuries, funded by a levy on owners of motor vehicles and drivers
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All injuries to earners whether occurring at work or not, funded by a flat-rate levy on employers for the cost of all injuries to their employees. A levy on the self-employed to pay for injuries occurring at work or outside of work was also proposed.
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Employers would have to pay a compulsory levy for injuries to employees, but they would also be protected from being sued for damages. The right to sue for motor vehicle injuries and non-work injuries to earners would also be removed.
The report recommended that the scheme be based on five basic principles:
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Community responsibility
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Comprehensive entitlement
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3.
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Complete rehabilitation
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Real compensation
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5.
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Administrative efficiency
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1974 − Accident Compensation Commission up and running
The accident compensation scheme came into operation on 1 April 1974 under the administration of the newly established Accident Compensation Commission (ACC). The Accident Compensation Act 1972, and the 1973 Amendment to that Act, defined ACC’s operation.
The 1972 Parliament voted unanimously to pass the Bill into law. The Act covered injuries to earners (both work and non-work injuries) and motor vehicle injuries. The Labour Government came into power later that year, and in 1973 passed an Amendment to the Act providing cover for those not already covered by the 1972 Act (including students, non-earners and visitors to New Zealand).
Three schemes were established under the 1973 Act:
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The earners’ scheme, funded from levies paid by employers on wages paid to employees, and paid by self-employed people
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The motor vehicle accident scheme, funded by levies paid by owners of motor vehicles
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The supplementary scheme, covering those not covered by the earners’ or motor vehicle accident scheme. Government funded this scheme.
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Under the Act, ACC benefits included:
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Hospital and medical expenses
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Rehabilitation costs
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Associated transport costs
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Earnings-related compensation (payable from the seventh day after the accident at a rate of 80% of average weekly earnings before the accident)
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Lump sum payments for permanent loss or impairment
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Lump sum payments (up to a maximum of $10,000) for pain and mental suffering
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Funeral costs and lump sum payments to surviving spouses and children in cases of accidental death.
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1979 – 1982 – Reducing the cost of the scheme and improving its administration
By 1979 there was growing dissatisfaction with the overall cost of the scheme, and employers had become increasingly vocal about paying the cost of non-work claims. The government established a Cabinet caucus committee chaired by the Hon Derek Quigley to review the accident compensation scheme.
The recommendations made by the Quigley committee included:
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The claimant should pay part of the cost of the first two visits to the doctor (they could recover this from the employer in the case of a work accident)
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The pause period for earnings-related compensation should be extended from one week to two weeks for non-work accidents (for work accidents the employer would pay compensation for the first two weeks)
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Lump sum payments should be abolished, except for serious cosmetic disfigurement
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The levy system and the levy collection method should be reviewed.
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As a result of the Quigley committee proposals, substantial changes were made to the Accident Compensation Act in 1982. More than 60 sections of the 1972 Act were deleted. The changes made included:
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Moving the funding structure from ‘fully’ funded to ‘pay-as-you-go’ funding
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Reducing employers’ obligations for providing weekly compensation from 100 percent to 80 percent for first week following a work accident
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Joining the three ‘schemes’ into a single scheme (which continued to be funded from the three levy sources)
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Moving work-related motor vehicle accidents from the earners’ account to the motor vehicle accident account
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Maximum amount payable for permanent loss or impairment was increased from $7,000 to $17,000 (maximum payable for pain and suffering remained at $10,000).
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1986 – 1990 – More reviews to the scheme
In 1986 a review of the scheme was undertaken. A committee was set up of representatives from ACC, the Department of Social Welfare, the Department of Labour, the Department of Health and Treasury. The Officials Committee report, published in 1987, placed particular emphasis on the disparity between New Zealand‘s treatment of accident victims and the illness-disabled. Numerous other social policy reviews were also under way at this time.
In light of the 1987 report, the government asked the Law Commission (chaired at the time by Sir Owen Woodhouse) to review the accident compensation scheme. The Law Commission report, published in 1988, recommended massive changes.
Many of the recommendations sought to iron out the disparities between the government’s treatment of accident victims and those incapacitated by sickness or disease. Generally, accident victims receive greater compensation than victims of sickness.
The changes recommended in the Law Commission report included:
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Weekly compensation should be based on the average weekly earnings for all New Zealanders. Non-earners should also be eligible for weekly compensation assessed in this way. There should be discretion to increase this amount in order to avoid injustice in an individual case
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The pause period for earnings-related compensation should be extended from one week to two weeks for non-work accidents (for work accidents the employer would pay compensation for the first two weeks)
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Lump sum payments (for permanent impairment or pain and suffering) be abolished and replaced with periodic payments
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A Minister should be responsible for the promotion of safety and accident prevention, and for the rehabilitation of those seriously injured
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ACC should produce detailed accident statistics
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Sickness, not just injury, should be included in the scheme
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Medical mishap should be included in the scheme
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Special provisions should be made for victims of sexual assault
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The motor vehicle levy should be responsive to changes in the consumer price index
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Employers and the self-employed should not be charged based on their business activity; there should be one rate for all types of business.
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The Labour Government considered these recommendations and, after further work by the Officials Committee, major changes were announced in the budget presented on 27 July 1989. The scheme was to be extended to cover those incapacitated by sickness or disease.
The National Government came to power in October 1990, and established another committee to review the scheme. The Employers Federation and the Business Roundtable demanded that employers stop paying for employees’ non-work accidents, and that the overall cost of the scheme be reduced. The terms of reference given to the Working Party suggested that one way to reduce the cost to society would be to provide greater freedom of choice between insurers and create competition between public and private sector insurers.
1992 – Changes to funding and entitlements – working towards a ‘fairer scheme’
After considering the Working Party report on the scheme, the National Government decided to make changes to the scheme. It was budget night 1991 when Bill Birch announced the changes in his paper ‘ACC – a fairer scheme’.
The resulting 1992 Accident Rehabilitation and Compensation Insurance Act included the following changes:
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The scheme was separated into different accounts
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An Earners’ Account premium was introduced to cover non-work injuries to those in paid employment. Employees paid for non-work injuries (instead of employers) through a premium collected by Inland Revenue
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Experience rating discounts and loadings were introduced for employers
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Entitlements, eligibility and rates were specified in regulations
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The calculation of weekly compensation was prescribed
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Lump sum entitlements were replaced by independence allowance (a periodic payment)
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Accident Compensation Appeal Authority was scrapped. The District Court took over its role.
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Further changes to the Act were passed into law in 1996 with the Accident Rehabilitation and Compensation Insurance Amendment Act. The changes included:
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Independence allowances were assessed using the American Medical Association Guides
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Independence allowances rates were increased
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A procedure for assessing work capacity was put in place
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ACC was now able to purchase health and rehabilitation services, reducing the waiting time for accident victims
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The accredited employers programme was introduced.
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1998 – Private insurers to cover work-related injuries instead of ACC
In 1998 the legislation changed again to allow private insurers to provide work-related accident insurance, starting from 1 July 1999. The 1998 Accident Insurance Act repealed the Accident Rehabilitation and Compensation Insurance Act 1992 and opened the competitive market for workplace injuries. Despite this, the basic principles of the scheme remained the same. Under the Act, ACC was excluded from providing the workplace accident insurance market. Self-employed people were allowed to choose to stay with ACC (which most did). The Office of the Accident Insurance Regulator was established to oversee the private market.
It was hoped that the new legislation would create more incentives for employers to make workplaces safer and to reduce the cost of injuries to society.
If employers did not purchase private accident insurance cover they could be forced to pay a significant penalty. A Non-compliers’ fund was set up to cover employees who were injured while working for an employer who had not taken out accident insurance.
The Accident Insurance Act 1998 also returned all accounts under the scheme to a fully-funded rather than a pay-as-you-go system. At this time ACC also established four profit-driven subsidiary companies − ACC Healthwise, Catalyst, Prism and DRSL (Dispute Resolution Services Limited).
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2001 – Injury Prevention Rehabilitation and Compensation Act
The latest proposed changes to ACC legislation are contained in the Injury Prevention Rehabilitation and Compensation Act 2001. Most of the provisions in this Act will take effect from 1 April 2002.
The Act maintains current entitlements and other provisions and includes:
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Greater focus on injury prevention as a primary function of ACC
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Greater focus on rehabilitation
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New management of injury-related information across the different agencies within the injury prevention sector. The Act provides for an information manager to be appointed, to oversee the collection of, and access to, data across the different government agencies
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Lump sum entitlements to be reintroduced for permanent impairment.
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Urban Renaissance Institute 