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Report on the Review of Part 7, Division 8, Workers Compensation Act 1987, Terrorism Re-Insurance Fund

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Report on the Review of Part 7, Division 8, Workers Compensation Act 1987, Terrorism Re-Insurance Fund Report on the Review of Part 7, Division 8, Workers Compensation Act 1987, Terrorism Re-insurance Fund OCTOBER 2005. PAGE 1 of 13 CONTENTS STATEMENT BY THE MINISTER FOR COMMERCE ............................................... 3 1 INTRODUCTION ................................................................................................. 4 1.1 Purpose of the review .................................................................................. 4 1.2 Process of review ......................................................................................... 4 1.3 Consultation ................................................................................................. 4 2 ORIGINS OF THE TERRORISM RE-INSURANCE FUND ................................. 5 2.1 Legislative context ....................................................................................... 5 2.2 Other jurisdictions ........................................................................................ 5 3 OBJECTIVES OF THE TERRORISM RE-INSURANCE FUND .......................... 6 4 STRUCTURE OF THE SCHEME ESTABLISHING THE TERRORISM RE-INSURANCE FUND ...................................................................................... 6 4.1 Ministerial responsibility ............................................................................... 6 4.2 Summary of provisions of the Terrorism Re-insurance Fund ....................... 6 5 APPLICATION OF THE TERRORISM RE-INSURANCE FUND ......................... 8 5.1 The establishment of the Fund ..................................................................... 8 5.2 Subsequent developments ........................................................................... 8 6 REVIEW OF THE CURRENT PROVISIONS ...................................................... 8 6.1 Summary of findings .................................................................................... 8 6.2 Validity of Objectives .................................................................................... 9 6.3 Appropriateness of the current provisions in meeting objectives ............... 10 7 OPTIONS .......................................................................................................... 10 7.1 Maintain current provisions ........................................................................ 10 7.2 Amend current provisions .......................................................................... 11 7.3 Repeal current provisions .......................................................................... 11 8 CONCLUSION .................................................................................................. 11 OCTOBER 2005. PAGE 2 of 13 STATEMENT BY THE MINISTER FOR COMMERCE The Workers Compensation Amendment (Terrorism Insurance Arrangements) Act 2002 commenced in December 2002 amending the Workers Compensation Act 1987 (the Workers Compensation Act), following the terrorist attacks of 11 September 2001. The amendments inserted a new Division 8 into Part 7 of the Workers Compensation Act, which provides for the establishment of a 'Workers Compensation Terrorism Re-insurance Fund' to be activated in the event of a significant terrorism related workers compensation loss in New South Wales. The provisions assist workers compensation insurers to meet licensing requirements and ensure that individual insurers and self insurers are not exposed to the full cost of significant workers compensation losses in the event of an act of terrorism in New South Wales. Thankfully the Terrorism Re-insurance Fund has not been required to date. However, the possibility of substantial workers compensation liabilities as a result of terrorism action in this State remains a reality. The statutory review of Division 8 'Terrorism Re-insurance Fund' of the Workers Compensation Act required by section 239AL of the Act, has been completed. The report confirms that the policy objectives of the Division remain valid and that the provisions remain appropriate for securing those objectives. The process of review involved direct consultation with key stakeholders. All stakeholders were supportive of the current provisions of Division 8 'Terrorism Re­ insurance Fund' as appropriate and adequately reflecting the level of exposure faced by New South Wales insurers and approved of the current scheme. The report therefore recommends no change to the current Terrorism Re-insurance Fund provisions (Sections 239M -239AL) of the Workers Compensation Act 1987. John Della Bosca MLC Minister for Commerce OCTOBER 2005. PAGE 3 of 13 1 INTRODUCTION Part 7, Division 8, (Sections 239AA -239AL) of the Workers Compensation Act 1987, Terrorism Re-insurance Fund, provides for a New South Wales workers compensation terrorism reinsurance scheme to meet claims of licensed, specialised and self-insurers in the event of an act of terrorism. 1 .1 Purpose of the review A review of Part 7, Division 8, of the Workers Compensation Act 1987, Terrorism Re-insurance Fund has been conducted in accordance with section 239AL of the Act, which states that the Minister is to conduct a review of the Division to determine whether the policy objectives of the Division remain valid and whether the provisions of the Division remain appropriate for securing those objectives. 1.2 Process of review The Minister for Commerce requested WorkCover NSW to facilitate the review process. Key stakeholders were approached directly by letter. Written-comment was sought on the availability and cost of terrorism reinsurance in the current environment, the appropriateness of the current pool arrangements and any further issues concerning terrorism insurance arrangements. Letters were sent by fax and post inviting eleven stakeholders to put forward comment. The closing date for comment was 26 August 2005. A total of seven written responses were received. 1.3 Consultation In conducting this review of the Terrorism Re-insurance Fund provisions, WorkCover NSW invited comment from the following key stakeholders: • Catholic Church Insurances Ltd; • Guild Insurance Ltd; • Coal Mines Insurance Pty Ltd; • Racing NSW; • North Insurances Pty Ltd; • StateCover Mutual Ltd; • Insurance Council of Australia; • NSW Workers Compensation Self Insurers Association; • NSW Treasury; l ' • Benfield Greig (Australia) Pty Ltd; and • AON Re Australia. ' OCTOBER 2005. PAGE 4 of 13 r i ! i ! 2 ORIGINS OF THE TERRORISM RE-INSURANCE FUND 2.1 Legislative context Following the terrorist attacks of 11 September 2001, reinsurers worldwide indicated that unlimited cover in relation to claims arising from acts of terrorism may no longer be available. The lack of availability of re-insurance for terrorism-related losses had serious implications for insurers underwriting a range of insurance business across Australia. Specialised workers compensation insurers are required to hold an authority to carry on insurance business under the Commonwealth Insurance Act 1973. In order to obtain an authority, it is necessary to have re-insurance arrangements which have been approved by the Australian Prudential Regulation Authority. The Workers Compensation Amendment (Terrorism Insurance Arrangements) Act 2002 (Amendment Act) was assented on 16 December 2002 and commenced on 20 December 2002. The Amendment Act aimed to address the potential impact of the lack of availability of workers compensation reinsurance for terrorism related losses. The Amendment Act inserted a new Division 8 into Part 7 of the Workers Compensation Act which provides for the establishment of the Workers Compensation Terrorism Re-insurance Fund in the event of a significant terrorism related loss in New South Wales. The provisions assist workers compensation insurers to meet licensing requirements and ensure that insurers and self insurers are not exposed to the full cost of significant workers compensation losses in the event of an act of terrorism in New South Wales. 2.2 Other jurisdictions The Commonwealth Government introduced the Terrorism Insurance Act 2003 which established a scheme for replacement terrorism insurance coverage for commercial property and business interruption but to date, does not include workers compensation coverage. Other jurisdictions that have introduced similar legislation for workers compensation reinsurance are: • Western Australia -terrorism arrangements were introduced in 2001 and have been extended to 31 December 2006; • Australian Capital Territory- terrorism arrangements were introduced in June 2002 and extended until 1 April 2009; • Tasmania- legislation was introduced in 2002, and remains current. OCTOBER 2005. PAGE 5 of 13 While the remaining jurisdictions have not introduced legislative amendments addressing terrorism insurance arrangements, the Northern Territory Government has formally indicated that insurers will be indemnified when claims resulting from terrorist action exceed $1 million. Further, the Victorian Government is currently reviewing its policy position in respect of an act of terrorism that causes death or injuries to the employees of a self insurer. Q-COMP, the Workers' Compensation Regulatory Authority of Queensland which is responsible for the regulation of self insurers in Queensland, is approving reinsurance policies without terrorism cover. In effect, this requires self insurers to meet the liabilities arising from an act of terrorism themselves. There is no specific fund in South Australia to cover terrorism liabilities. The South Australian WorkCover requires all self insurers to have a catastrophe
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