ACC is currently going through a period of significant change. We need to ensure the ACC Scheme is financially sustainable. This page explains the financial challenges we face and how we are adapting to address these.
Balancing our assets and liabilities - full funding
ACC has a legal obligation to ensure the Scheme is ‘fully funded’, ie it holds enough assets to meet its liabilities. ACC’s assets are the funds it has banked and invested to meet claims costs. Our liabilities are all the future costs that we estimate will result from current claims.
Every time we receive a new claim, therefore, we must calculate how much that claim will cost us, now and in the future. And we collect money (via levies) to meet all those costs, in the year the claim is received. Because we don’t need to spend all the money we collect straight away (since some of it’s for future costs) we invest a portion, and use the interest as a further source of income.
ACC legislation now requires the Scheme to be fully funded by 2019. Until 2009, our target date was 2014, but our deficit meant we were falling well behind that target.
For more information on ACC’s governing legislation, see the Accident Compensation (AC) Act 2001 (external link).
The benefits of full funding
Reaching our full funding target will mean we hold sufficient funds to meet our liabilities. This will reassure those making claims today that their future claims costs will be met.
It will mean today’s generation will pay for its injury costs, and not pass a debt for those costs on to future generations.
This approach can also help lessen the load on levy payers. It will generally enable us to collect less money than we will eventually need to pay out in claims costs, since we can grow a portion of what we collect with interest.
For more information on funding, see How we are funded.
ACC’s deficit
We need to ensure we have sufficient assets (money) to meet our liabilities (pay out on claims) in the long term. Between 2004 and 2009, ACC had a steadily worsening deficit (a gap between its assets and liabilities). The deficit reached $12.8 billion in 2009, which raised concerns about the Scheme’s long-term sustainability.
A number of factors contributed to the deficit, including:
- increasing numbers of claims – yearly increases were recorded until about 2009
- increasing costs of medical treatment – these kept rising well above inflation
- expansion of the entitlements provided under the Scheme
- falling rehabilitation performance - ie results in New Zealand followed a worldwide trend which saw people taking longer to recover from injuries, on average.
These factors all increased our liabilities. But for some time, ACC levies weren’t increasing sufficiently to match our liabilities. This caused the deficit to grow. The problem was compounded by the economic recession, which caused a sharp drop in ACC’s investment returns in 2009.
We’ve since made lots of changes to reduce the deficit, which fell to around $10.3 billion in 2010.
For more information on ACC’s investments, see Investment returns.
Our refocused approach
The deficit and overall financial situation made ACC refocus our approach to our role. We’ve become even more business-like in the way we manage the Scheme. In other words, there’s now a much greater emphasis on being cost-efficient and operating like a prudent commercial insurer.
ACC is also concentrating more on its core purpose as defined in legislation, which is to help people with injuries covered by the Scheme. This means we’re now scrutinising claims much more carefully, to ensure they meet relevant cover criteria.
An example is elective surgery claims. With these claims, we’re making sure we only pay for injury-related needs, and not pre-existing health conditions or age-related needs, which are the responsibility of the public health system.
This is not about ‘shifting costs’, but about costs being met in the right area. It’s also about fairness for ACC levy payers, ie not expecting them to pay for non-injuries, which fall outside the scope of the ACC Scheme.
Improving rehabilitation performance
Many of the changes ACC has made recently have been aimed at improving our rehabilitation performance.
In simple terms, this means ACC is looking for even better ways to help people recover quickly from injury. This is the most powerful tool we have to reduce the Scheme’s liabilities.
Recent changes we’ve made to improve our rehabilitation performance include:
- new claims management processes to help clients get the right help more quickly, to ensure swifter and more successful rehabilitation outcomes
- a new approach to helping clients with long-term claims recover their independence
- a greater emphasis on work-based rehabilitation, which international evidence shows leads to the best recovery outcomes.
We’re also developing new ways of working with the health professionals contracted to deliver ACC funded services, such as:
- paying them to achieve specified rehabilitation ‘outcomes’, rather than just delivering a set number of services
- monitoring their performance more closely, to ensure the right results are being achieved
- setting more reasonable prices in contracts, to achieve greater value for money.
Setting levies at realistic levels
Significant levy increases were essential in 2009. This eased the imbalance caused by levies failing to keep pace with rising costs over previous years.
Smaller increases to some levies may still be necessary in the future, if only to take into account inflation. This will help keep the Scheme on track to full funding.
ACC appreciates there’s a limit to the amount that New Zealanders are willing and able to pay in ACC levies. Therefore, levy increases are just one part of many actions we are taking to get the Scheme back on a sustainable path.
Our annual levy consultation process enables New Zealanders to have their say on any levy changes proposed by ACC. But the reality is that levies must ultimately be set at a level which meets the Scheme’s costs.
For more information on levies, see About ACC Levies.
Account funding targets
ACC operates a number of ‘accounts’, with each account used to fund a particular category of injury-related costs.
As part of our goal to ensure the Scheme is fully funded, individual plans have been set up for each account. These plans set out interim funding targets, and will help us track our progress towards full funding.
Actuarial release
To assess the effectiveness of the changes we’ve made to improve the Scheme’s sustainability we need to be able to measure their impact.
One tool we’re using to do this is actuarial release. This is a formula that allows us to isolate the impact of internal, operational improvements on our liabilities, independent of factors outside our control.
Factors under our control which contribute to actuarial release include things like improved rehabilitation rates. Factors outside our control include things like inflation.
Surpluses crucial to path to sustainability
For the first time in many years, ACC achieved a surplus in 2009/10. In other words, our income over the course of this financial year exceeded our spending. This is a positive result, which points to the success of the measures we’ve taken to control costs.
However, it’s important to note that this surplus isn’t money that we can use to reduce levies or fund additional services. Instead, we must use it to help reduce our deficit.
The 2009/10 surplus is also just the start. We need to achieve surpluses for at least the next five to 10 years to completely erase our deficit and return the Scheme to full funding.
Last updated: 16 September 2010