Keith Rankin

Keith Rankin is a political economist and economy historian
who lives in Auckland, New Zealand. His biographical info.
Keith's email contact is: <keithr@ak.planet.gen.nz>.

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The Rankin File: #37

Jenny Shipley introduced legislation last week to convert the Accident Compensation Commission (ACC) into an SOE (State Owned Enterprise) that may be subjected to competition from private sector insurers. It is another step towards the exposure of the ACC as an irrelevance as a social welfare institution.

The ACC was introduced in 1973 for several reasons. The most explicit reason was to allow for a shift of focus towards accident victim compensation and restitution, and away from legal wrangling over laying blame. Another reason was a desire to reduce accidents through the 'carrot' of education rather than through the 'stick' of legal liability.

The underlying reasons that made the birth of the ACC possible were the belief in the ongoing viability of the 'family breadwinner' mode of production, the belief in the ongoing importance of manual work, and a preference within at least some sections of the community for 'social insurance' forms of welfare provision, essentially along European lines, but also reflecting an American view of welfare.

There were ironies, because Labour's ACC legislation followed National's signalling of the end of the breadwinner model through its 1972 equal pay legislation; legislation which represented the beginning of the end of the 'male wage' as a 'family wage'. And the ACC legislation followed National's recommitment (through the 1972 McCarthy Commission) to the 1938style of universal welfare state. Indeed, National further recommitted itself to that style of universalism in 1976 with its National Superannuation Scheme. On the other hand, Labour's New Zealand Superannuation, alongside the ACC, represented a switch in Labour thinking towards social insurance.

Social insurance treats the state as a giant insurance company. Thus it implicitly assumes that people who contribute to it should get financial benefits in proportion to their 'premiums', to their financial contributions. Thus, it favours high benefits to high earners. It targets high earners, wage and salary earners, family breadwinners (overwhelmingly male in 1973). It is an approach to welfare that discriminates against the unemployed and people classed as "not in the labour force". It is an approach to welfare that made sense in the 19th century when the insurance industry was forged in the wake of industrialism, but it is an anachronism in the 21st century.

The main benefit from ACC is "Earnings Related Compensation" (ERC). Thus the main beneficiaries have been persons - overwhelmingly male - who were receiving high regular salaries or wages at the time of their accidents.

The costs of ACC as a form of welfare are prohibitive. The ACC is poorly integrated into the welfare system as a whole. Thus it employs a separate bureaucracy that has grown as financial constraints have tightened. More managers - "nomen" - have been hired to make it harder for victims to successfully claim benefits from the scheme. It is a scheme with a few big winners and a whole community of losers.

The ACC system, like all insurance systems, suffers from what economists call "moral hazard". Physiotherapists and a few doctors abused the system for years. Victims of "satanic abuses" that never happened have been compensated (as in the wake of the Christchurch Civic Crêche closure). And top ACC staff have not always been exempt from the temptation of profiteering from the large fund they have been entrusted to manage.

There is less practical incentive for firms to keep their workplaces safe under ACC law which exempts them from civil damages. Indeed ACC's "no fault" provisions combined with the cheap labour philosophy of the Employment Contracts Act provides for a potentially lethal mix whereby almost none of the costs of accidents are borne by accidentprone firms.

Welfare provision for accident victims can be provided much more cheaply through normal welfare channels than through the ACC. Furthermore, becoming ill is as much an accident as is a sporting injury, and is more an accident than are predictable workplace conditions such as RSI (repetitive strain injury) and OOS (occupational overuse syndrome).

With the introduction of a Universal Basic Income (UBI), the ACC has no reason for being. A UBI system provides a core universal benefit (a UBI) to every adult (equal benefits for equals) and a customised supplementary benefit (SBI - Supplementary Basic Income) for anyone with special needs or special circumstances (unequal benefits for people with unequal circumstances).

Accident victims fall into the special needs category, as unequals with additional needs, in addition to the universal category. Their needs may include both additional cash and additional healthcare services services. These needs should be simply assessed and provided. The cash component could be meanstested (an SBI, or an increment to an SBI) or universal (a topup to the UBI).

One special circumstance that should not apply is the claim for an earningsrelated benefit. Unlike say Germany, where Unemployment Benefits are earningsrelated, New Zealand only provides two explicitly earningsrelated benefits: ACC and ChildSupport (ie liable parent contributions; not Family Support).

ACC earningrelated benefits should be dispensed with. That means dispensing with the ACC. It is not part of New Zealand culture to pay a rich man a higher benefit than a poor woman, where their circumstances are otherwise identical. A UBI system is structured so that a rich person can never get a higher benefit than a poor person facing the same misfortune, be it accident, illness or unemployment.

What about accident prevention incentives? I would like to see some legal accountability passed on to accidentprone parties, be they firms, sporting associations, road users, or whatever. It could be based on a system of automatic fines payable whenever a person dies or is injured sufficiently to qualify for an accident compensation loading on their UBI or SBI, and that person was an employee or customer of a firm, or playing organised sport. Firms and sporting bodies could insure themselves against fines through the private insurance industry. The firms making few claims would soon become entitled to premium bonuses and lower excesses on claims.

The philosophies of social insurance and earningsrelatedcompensation belong in an era that is now past. A modern welfare state pays benefits on account of citizenship rights and additional special needs. As such, benefit payments act to distribute final income on a more egalitarian basis than would otherwise take place. Modern social welfare systems are not there to reinforce preexisting inequalities. Nor are they there so that irresponsible firms can escape accountability for sloppy workplace safety procedures.

The ACC is an expensive anachronism. Let's dispense with it, and pay a fair benefit that treats all accident victims the same. By all means encourage people to take out additional private insurance that will give them earningsrelated benefits.

Keith Rankin

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The Rankin File: #37

Accident Compensation Commission; an expensive failure.