Auckland University ACC Debate

[Squiggles]

Some of you might be interested in this (http://www.auckland.ac.nz/uoa/home/events/template/event_item.jsp?cid=214475)...

The ACC debate: How do we pay for ACC?

15 December 2009

2pm - 5pm

Venue: Owen G Glenn Building, 12 Grafton Road (http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=Owen+G+Glenn+Building,+12+Grafton+Road&ie=UTF8&hq=Owen+G+Glenn+Building,+12+Grafton+Road&hnear=&z=16)

Contact: For further information please contact Dr M Claire Dale, phone 09 923 6968 or email m.dale@auckland.ac.nz



ACC Forum hosted by the ACC Group in association with the Retirement Policy and Research Centre.
Co-sponsored by the Department of Economics, Business School, The University of Auckland.

In the late 1990s, it was decided that ACC should become fully pre-funded. Is that the best way of setting the levies?

An appropriate financial foundation is crucial for the ACC so how might that be organised? Speakers will present the case for their preferred option: pre-funding, or PAYG. Other speakers will suggest possible pitfalls in each of the options.

Keynote speaker:
Professor Richard Gaskins, Brandeis University Massachusetts, will offer some reflections from abroad on the ACC’s place in the world, and why it matters to get it right. Professor Gaskins is Director of the Legal Studies Program and the Joseph M. Proskauer Professor of Law and Social Welfare. His research interests include comparative studies in Iceland and New Zealand.

About the ACC Group:
The ACC Group is a joint venture between the University of Auckland and Victoria University of Wellington, comprised of nationally and internationally recognised academics and practising lawyers who have an interest in New Zealand’s unique system of accident compensation, called ACC. This ground-breaking social-insurance scheme was set up following the famous Woodhouse Report: Compensation for Personal Injury in New Zealand, Report of the Royal Commission of Inquiry 1967. ACC Group media enquires to Dr Grant Duncan.

About the Retirement Policy and Research Centre (RPRC):
The RPRC is an academically focused centre specialising in the economic issues of demographic change. More information. (http://www.business.auckland.ac.nz/Home/Research/Researchcentres/RetirementPolicyandResearchCentre/tabid/1148/Default.aspx)

[Squiggles]

Full event Programme and Registration (Email them or post it) is attached, free drinks afterwards woot! :eek:

[p.dath]

That sounds great. Bugger it's during the working day!

[Squiggles]

Bumping this

[Squiggles]

Press release from ACC group: 12th October Press release 12th Oct (38kB) (http://web.auckland.ac.nz/uoa/fms/default/uoa/about/research/units/accgroup/docs/ACC%20comments%20-%20oct%2011%2009%20_2_.pdf)


"ACC presently holds reserves of about $11 billion, which equates to about three years’ worth of expenditure. ACC has never had such healthy reserves, and has survived much more precarious financial positions in the past," Dr Duncan says.


"While there are concerns within the scheme about rising costs and about the adequacy of levies, the ACC Group does not believe that a single-minded pursuit of full funding is necessary or desirable for the future of the scheme.


"Building up a reserve of an estimated $23.8 billion, in present-day terms, makes little sense when the Government is, on the other hand, having to borrow more due to budget deficits.


"Taxing us more for ACC’s investment fund on one side, while borrowing for a budget deficit on the other, is a futile fiscal programme."


The group says present Government alarm about ACC stems from a recent practice of valuing the scheme’s unfunded liabilities. This means that the ACC’s existing $11 billion reserves are being balanced against present-day value of the full future costs of current compensation claims, Dr Duncan says.


"This actuarial valuation of the unfunded liabilities is only a projection. Small changes in accounting standards and economic assumptions can dramatically change that estimate."


"ACC levies are a statutory call on firms and earners, so there is no compelling reason for ACC to become fully funded. And it is misleading to use the unfunded future liability either as a performance-measure for evaluating the scheme, or as a case for higher levies.


"By contrast, ACC levies could be kept stable for the time being, with little real danger to the scheme, allowing some relief for firms and households while the economy recovers."

[Hanne]

Just registered....

[avgas]

bugger - during working hours.
Also missing all the engineering student final presentations too this year.......sucks

[NONONO]

Work...bugger.
Can someone ask Dr Duncan if he fancies a pint with a few bikers in the near future?

[Squiggles]

Very interesting... alot of points for and against full funding

[candor]

Could you expand on that?

[short-circuit]

Could you expand on that?

I can:

Arguments for fully funded:prrrrrrrrrrrft

[Squiggles]

Could you expand on that?

Yep, hoping they'll have sent the stuff out tomorrow or ill scan it at work, made some notes but Hanne's are far prettier :yes:

A teaser perhaps?
Alot of points against full funding, comparisons to schemes such as superannuation. PAYG with a few years worth as reserves seems like the best way forward. About borrowing to fund these schemes, how the trump card for ACC is that it CAN be funded through taxation ... (A couple of questions addressed why its done through the various levies, pretty much just as a follow through from what used to exist).
Whether its suitable to even use the actuarial accounting methods (NZ IFRS4?) they do, especially given this trump card. An interesting review of the history of the scheme and how many times it's built up a decent reserve then crashed because of political influence, very good quote from Gerry? Brownlee in 2000 to Cullen about whether labour would be claiming the scheme was in a crisis further down the line yadayada. + a bit more

T'was a bit over 3 hours. Sir Owen was there and did make some remarks at the end, Charles Lamb made it there too.

[Hanne]

I believe I may see Dr Duncan again tomorrow... he's from Massey uni

[Squiggles]

The presentation slides and background papers are now available here (http://business.auckland.ac.nz/Schoolhome/Research/Researchcentres/RetirementPolicyandResearchCentre/Events/ACCforum/tabid/1918/Default.aspx)

[Ixion]

A major point that appears to have been overlooked by all parties is that, completely unlike insuance cover , under ACC there is no contractual liability. It is actually nonsense for ACC to speak of the future costs of claims as liabilities, because there is no contract.

If I take out an insurance policy, and the terms are that if so-and-so (eg an accident) occurs , they will pay me $Y, or an annuity of $Z per year (inflation adjusted), that is a contract. They must pay me the $Y or $Z. If they have a bad year , tough. No court would entertain a defence along the lines of "Well, yes, the contract said $Z per year. But, we are losing money, we think we can't afford $Z. So we want to pay a smaller amount".

But that is not the case with ACC. For instance, at present the rate of ERC is 80% of pre injury earnings. But ACC are under no contractual liability to pay that. The government could at a stroke reduce it to 70% or 60% , as they have already proposed. And that reduced rate would be applicable both to existing claims (those that happened in the past) and future claims.

The entitlements under ACC are not contractually based. Either for future claims, or past claims. They are at a rate that is set only for the moment.

A corollary therefore of ACC wishing to be an insurance company is that they should NOT be able to change entitlements. Once the claim is accepted, the entitlements are locked in for all time. I do not think ACC would want to accept that condition. They want the best of both worlds. To claim to be an insurance company but refuse to accept the contractual liabilities of an insurance company.

[Skyryder]

A major point that appears to have been overlooked by all parties is that, completely unlike insuance cover , under ACC there is no contractual liability. It is actually nonsense for ACC to speak of the future costs of claims as liabilities, because there is no contract.

If I take out an insurance policy, and the terms are that if so-and-so (eg an accident) occurs , they will pay me $Y, or an annuity of $Z per year (inflation adjusted), that is a contract. They must pay me the $Y or $Z. If they have a bad year , tough. No court would entertain a defence along the lines of "Well, yes, the contract said $Z per year. But, we are losing money, we think we can't afford $Z. So we want to pay a smaller amount".

But that is not the case with ACC. For instance, at present the rate of ERC is 80% of pre injury earnings. But ACC are under no contractual liability to pay that. The government could at a stroke reduce it to 70% or 60% , as they have already proposed. And that reduced rate would be applicable both to existing claims (those that happened in the past) and future claims.

The entitlements under ACC are not contractually based. Either for future claims, or past claims. They are at a rate that is set only for the moment.

A corollary therefore of ACC wishing to be an insurance company is that they should NOT be able to change entitlements. Once the claim is accepted, the entitlements are locked in for all time. I do not think ACC would want to accept that condition. They want the best of both worlds. To claim to be an insurance company but refuse to accept the contractual liabilities of an insurance company.

This is why it's such a good buy for the Private sector. This deal is unavailable anywhere else. It's a money making gold mine that will be 'given away' at any price.

Skyryder