Australia’s largest workers’ compensation scheme, icare, has been surrounded by scandals for months.
Set up by New South Wales treasurer, Dominic Perrottet, in 2015 to replace the old WorkCover scheme after it had racked up $4bn in debt, icare has faced increasing scrutiny after it was found to be mismanaged and on the verge of collapse.
The insurance giant protects more than $193bn of NSW government assets, including the Sydney Harbour Bridge and the Sydney Opera House but, more importantly, covers more than 3.4 million workers and 284,000 employers for workers’ compensation.
A combined investigation by the Age, the Sydney Morning Herald and ABC TV’s Four Corners into the insurer found it had underpaid up to 52,000 injured workers by up to $80m in compensation.
What followed was a flurry of further investigations, parliamentary inquiries, resignations and intense pressure.
A struggling system
The investigation found icare had underpaid thousands of sick and injured workers, up to $80m.
A subsequent statement from Perrottet’s office rounded down the numbers, saying that they had underpaid between $5m to $10m, and that it has only affected 5,000 to 10,000 workers.
A report in 2019 from the State Insurance Regulation Authority (Sira), however, laid out a damning picture of the competence of icare’s management.
It listed incorrect weekly payments to injured workers, duplicate payments for diagnostic services and serious failures in its automated claims management system. The failures had allegedly led to 50% of cases being incorrectly classified.
A portion of these issues can be tied to the decision icare made to move to a new claims model and a single agent, EML, to manage all the new claims. The new digital system was supposed to make claims management more efficient, and save hundreds of millions of dollars.
But the report by Sira was searing in its assessment of the new system, saying it has been “under-resourced since the inception” and that staff “lack the skills and experience for technical case management of personal injury claims”.
It has resulted in delayed and denied treatments for injured workers, as well as confusing directions, huge turnovers of case managers and, in some cases, in secondary injuries.
The current return-to-work rate, an industry indicator of how well a workers’ compensation scheme is working, has declined significantly at icare.
The investigation reports that there are now 20,000 more people off work long-term than before the new model was brought in.
A spokesperson for icare told the Guardian, however, that the underpayments were a result of discrepancies in pre-injury average weekly earnings (PIAWE) that stretched back to 2012, when WorkCover ran the insurance scheme.
Executive salaries skyrocket
The low return-to-work numbers have caused a pile-up of weekly payments and medical costs.
In 2019 alone, icare spent $845m on medical expenses, leading to an increase in liabilities for the schemeand higher premiums.
A domino effect of mismanagement and payments caused icare’s finances to deteriorate, with Sira telling the investigation it had “grave concerns” for the viability of the scheme.
A note from NSW Treasury in March 2020 said that the situation was so dire “the fund’s solvency is at risk”. The then chief executive, John Nagle, denied this was the case in an interview with the Sydney Morning Herald.
This was revealed as salaries for executives at icare skyrocketed.
Peter McCarthy, former government adviser and senior EY partner, told the investigation the executives at icare were some of the best paid in the public sector, with about 45 people receiving an average salary of $300,000. “The salaries of the top seven executives average around $660,000,” he said.
A parliamentary inquiry in August revealed that almost $4m in salaries and bonuses was paid to icare executives in the 2018-2019 financial year.
Contracts and close ties
Which brings us to the final part of this scandal, the many unregistered contracts that cost millions of dollars. There has also been scrutiny of the companies’ ties to the Liberal party.
The Information and Privacy Commission NSW found that since 2015, icare had not publicly registered 422 contracts each worth more than $150,000.
The compensation scheme spent more than $8m on a contract with executive recruiting firm Korn Ferry that did not go to tender. The company has previously employed a former NSW Liberal minister and a major Liberal donor.
The investigation also revealed that marketing firm IVE Group was awarded millions of dollars in contracts without going to tender. IVE Group is run by former NSW Liberal party president Geoff Selig, and the company donated almost $100,000 to the NSW Liberal party between 2014 and 2019.
The links to the Liberal party extend to the office of Perrottet, with the Herald investigation revealing that icare was paying the salaries of two ministerial staff, including senior policy adviser Ed Yap, who is a former US Republican party operative. That revelation led to the resignation of Nigel Freitas, the Treasurer’s chief of staff, who blamed the issue on an “administrative oversight”.
The chief executive, John Nagle, also resigned after it was revealed he had failed to properly disclose that icare had awarded a contract to his wife.
The inquiry was told that Nagle’s wife was paid more than $800,000 for staff training between 2016 and 2019.
The icare spokesperson said that the insurance scheme had now disclosed “all active contracts in line with the Government Information (Public Access) Act 2009 (Gipa Act).”
Perrottet orders review into troubled scheme
The revelations led to a shake-up of the icare board, with former NSW Labor leader John Robertson taking the reins at the troubled public insurer.
Its spokesperson said that icare is going through a period of change to address some of the issues raised by the investigations.
“The recently publicised issues of past practice don’t reflect the way icare aspires to deliver services and work is under way to address this on multiple fronts.”
The Information and Privacy Commission has also launched an audit of icare, with the first stage completed and focused on the “history of non-compliance” with Gipa Act.
Perrottet has also enlisted supreme court judge Robert McDougall, QC to review icare, saying it will be “a root and branch examination to ensure public confidence in our workers’ compensation system”.
The Guardian asked Dominic Perrottet’s office for comment several days before publication, without receiving a response.