Why was ACC not an election issue?

And why we might be grateful for that.

Political parties had a lot to say about New Zealand’s public healthcare and social security systems during October’s election debates, but little on accident compensation (ACC). In a way, this was a good thing, as ACC had become a political football since the early 1990s. But could ACC be on the agenda for a radical shake-up in future?

ACC stands on its own as a Crown entity funded by dedicated levies collected by Inland Revenue (IRD). Its existence since 1974 arose from some far-reaching recommendations made by a Royal Commission in 1967. The law that governs ACC terminated the right to sue for compensation for personal injury in New Zealand, and, in return, the people were guaranteed no-fault social insurance for personal injury by accident on a universal 24/7 basis, as well as for occupational diseases.

For those not quite familiar with it, there’s a summary of the scheme below, along with the five underlying principles that were set out in the 1967 Royal Commission report (the Woodhouse principles).

ACC’s logo hasn’t changed since the 1980s!

ACC is critical to the overall social security system, it cares for long-term claimants with severe disability, and it manages a very large reserve fund ($47 billion), so it’s essential that New Zealanders have confidence in its future. But, like NZ Superannuation, unfortunately it became a political football. Here’s a timeline of key events:

1992: A legislative overhaul made ACC more ‘insurance-based’ with user-pays (an employees’ levy), experience rating and work-capacity assessment.

1998: The ACC work account (covering employees when injured on the job) was deregulated. Private insurance companies could enter the scheme by signing employers onto work-injury insurance contracts.

1999: This competitive system commenced in mid-1999. The Labour Party, while in opposition, warned that, if they won the election that year (which they did), those insurance contracts would be terminated by force of law, and the state monopoly would be restored.

2000: The new Labour-led government carried out its policy of restoring the workers’ compensation part of the ACC scheme (the work account) to the state monopoly. This contributed to the so-called ‘winter of discontent’ as employers reacted against Labour’s policies.

2010: Key’s National-led government decided in principle to open up the ACC work account to competitive provision – again. Officials were instructed to complete a scoping study on introducing competitive provision also for workers’ off-the-job injuries and for all motor-vehicle accidents.

2011: The National Party took the policy of ‘choice’ (or compulsory private insurance cover) to the election that year to seek a mandate. The ban on the right to sue would remain.

2012: Following a series of scandals and a change of minister, the Key government quietly dropped its election pledge to introduce competitive provision. Why? Because it was going to mean either much higher levies for employers or a radical reduction in entitlements for injured people.

Fortunately, any ideas about deregulating ACC accounts have been off the agenda since then. Significantly, neither National nor ACT raised the issue in their 2023 election manifestos.

I’m not ideologically opposed to private enterprise and competition – when they work well. But accident compensation is one area where New Zealanders are better off with a state monopoly. It keeps levies lower, and it wastes less on litigation and marketing. The insurance fund belongs to the public and so its investment returns go back into the scheme (rather than to offshore investors) and help to keep levies down. Private insurers can’t be relied on always to be on the side of the injured person, especially when the employer is the customer who pays the premium.

The ACC state monopoly scheme is far from perfect, however, and people will continue to push for improvements in cover, entitlements and service quality. There’s an ongoing concern about the large differences in entitlements for people with disability who are covered by ACC compared with those who aren’t. The Corporation could improve accessibility and equity, and sometimes the law needs to be changed to ensure that all who deserve it get cover. It’s fair to complain about the scheme, but there’s a risk that public dissatisfaction in future may be used again to push for deregulation.

As shown by the trials over the deaths and injuries caused by the Whakaari/White Island eruption, one area where NZ must do better is in clarifying and enforcing health and safety standards. Fines and reparations arising from criminal prosecutions by Worksafe could go into the millions in this case, but Worksafe’s own guidelines have also been criticised for contributing to the tragedy.

ACC has an injury prevention function, but oversight and enforcement of health and safety standards is Worksafe’s job.

The ACC scheme and the Woodhouse principles have been defended over the years by a cohort of activist lawyers, trade unionists and academics, including myself. I assisted in a seminar to mark the 40th anniversary of the publication of the 1967 Royal Commission report at the University of Auckland law school in December 2007, at which the late Sir Owen Woodhouse spoke. An e-version of the report was published at that time.

We’re approaching now the 56th birthday of the Woodhouse report. In some ways, of course, the report is now very out of date (e.g., no mention of the Treaty and an assumption of a gender division of labour), but the five principle (see below) still make good sense. To what extent, though, are they still fit for purpose?

For more, see: G. Duncan. 2019. ‘New Zealand’s universal no-fault accident compensation scheme: Embedding community responsibility’. In Successful Public Policy: Lessons from Australia and New Zealand, edited by Joannah Luetjens, Michael Mintrom and Paul ’t Hart, ANU Press, Canberra, Australia. Downloadable here.

What does ACC do and who funds it?

ACC covers all New Zealanders and visitors on a 24/7 basis, regardless of circumstances or fault, for personal injury caused by accident (including through medical treatment), for work-related illnesses, and for mental injury caused by crimes of a sexual nature. Benefits include income-related compensation (normally 80% of prior income), medical treatment and vocational and social rehabilitation. It’s funded by pay-roll levies on employers and employees, a portion of motor-vehicle registrations, a petrol levy, and a government contribution from general taxation for non-earners.

The Woodhouse Principles

The 1967 Royal Commission took a sceptical view of the value of allowing citizens to sue one another, as the legal processes were slow and costly, and awards were unpredictable and sometimes negligible. Two litigants suffering much the same injury and disability could end up with vastly different levels of fault-based compensation. To support its case against the negligence action, and to guide an alternative model, the Royal Commission set out five principles:

1.             Community responsibility. As the whole of society benefits from the productive work and voluntary activities of citizens, and as predictable risks of injuries and incapacity are inherent therein, so society should accept responsibility for supporting and rehabilitating those who do fall victim. This implied socialised risk-sharing. It rejected individualised fault and the theory that the threat of being sued exerts ‘general deterrence’ against avoidable risk.

2.             Comprehensive entitlement. To address the fragmentation and inconsistency in the legal and institutional status quo ante, equal losses should be treated equally by society, regardless of the particular place or time of the accident.

3.             Complete rehabilitation. “The consideration of overriding importance must be to encourage every injured worker to recover the maximum degree of bodily health and vocational utility in a minimum of time” (Royal Commission of Inquiry, 1967, p.40).

4.             Real compensation. The victim’s actual losses, both physical and economic, including permanent impairments, should be recompensed, rather than covering only basic needs as in the social-security system. This meant income-related compensation for those unable to work temporarily or permanently, rather than means-tested and needs-based benefits.

5.             Administrative efficiency. Collection of funds and distribution of benefits “should be handled speedily, consistently, economically, and without contention” (Royal Commission of Inquiry, 1967, p.41). In a “comprehensive, universal, and compulsory system of social insurance […] there could be no point in retaining any form of adversary system in regard to the assessment of compensation” (Royal Commission of Inquiry, 1967, p.125, emphasis added).

The Royal Commission of Inquiry (1967, p.127) proposed the extinguishment of common law rights regarding personal injury and the implementation of an administrative appeals system based upon “inquiry and investigation” rather than “adversary techniques”. It recommended the extension of the no-fault, loss-based workers’ compensation model to all personal injury, regardless of circumstances and regardless of employment status. This meant universal cover on a 24/7 basis, rather than only for workers injured on the job, plus the elimination of the right to sue for compensation for personal injury. It also meant delivery by a state monopoly provider.