AEP allows large employers to take on the role of ACC

AEP allows sufficiently large employers to ‘stand in ACC’s shoes’ to make cover and entitlement decisions and manage their employees’ claims for work injuries and occupational diseases. In return for taking on this financial liability, AEs receive a substantial reduction in the employer levy they pay to ACC.

The premise for AEP is that employers may be able to provide a better and more efficient experience for injured workers than ACC, as the employer should have a closer relationship with their employees and know the industry better.

Only employers who are accredited by ACC can participate in AEP. Becoming accredited involves meeting financial strength requirements and being able to demonstrate sufficient experience and expertise in workplace health and safety, and claims and injury management.

AEP has operated largely unchanged since its inception in 2001. Following the recent changes ACC has been making to become more effective and efficient in its operations, a number of reforms to AEP are proposed. These reforms also aim to address issues raised in a recent independent review of AEP.

Reforming AEP requires amendments to the Framework and consultation

The rules for AEP are set by a combination of primary legislation, secondary legislation, contract and ACC internal procedures. The secondary legislation that governs much of the day-to-day operations of AEP is the 'Framework for the Accredited Employers Programme' (the Framework), which is published in the New Zealand Gazette.

The proposed changes to AEP require amendments to the Framework (secondary legislation) as well as changes to operational procedures and modifications to the Accreditation Agreement with employers. It is also proposed to update the drafting style of the Framework to make it more modern and accessible.

The Framework can be changed only after the Minister for ACC consults with interested parties. This consultation document has been published to meet that consultation requirement. Although the Minister does not have to consult on operational changes, these are included in the discussion document given all the changes are proposed as a package.

Reform proposals have evolved over several years

In 2017, ACC held workshops with business customers, advocacy groups, unions, and employers across New Zealand. These focused on improving ACC’s workplace safety incentives. The insights from this engagement highlighted opportunities to improve AEP.

In 2018, MBIE commissioned research on AEP. This research found that although AEP was delivering better return to work outcomes for employees and lower compensation costs, there were areas where AEP could be improved. These mostly related to ensuring AEs have sufficient capability to meet AEP objectives and appropriate governance, including engagement arrangements with employees and their representatives.

The research also highlighted concerns with the performance of third-party administrators (TPAs). AEP employers that self-managed employee claims were significantly outperforming those who used TPAs on key employee satisfaction indicators.

Following on from its work in 2017 and the findings of the MBIE review, ACC began several engagements with AEs, TPAs and worker representatives to look at the ways that AEP could be improved. This work culminated in the development of a ‘Targeted Operating Model’ (TOM) for AEP.  

The TOM set an aspirational vision that “AEP is the premium injury prevention and management programme for NZ’s highest performing workplaces, that continuously and sustainably improves everyone’s health, safety and wellbeing.” 

The key features of the TOM were: 

  • Positioning AEP as a programme for the ‘best of the best’ 
  • Setting incentives for AEP that drives performance 
  • Putting worker wellbeing at the centre of the programme 
  • Building a culture of continuous improvement 
  • Developing a holistic and outcomes-focussed performance monitoring system 
  • Working together to achieve better outcomes 
  • Ensuring quality assurance through a robust certification process 
  • Managing the AEP system rather than the contract 

Options were narrowed

After the TOM was developed, MBIE and ACC engaged with the Minister for ACC in early 2019 to seek direction on the future of AEP. A range of options were considered, including making fundamental changes to AEP via a change to primary legislation, and abolishing AEP entirely.

However, all the issues with AEP identified in MBIE’s 2018 review can be addressed by making changes to the AEP Framework and operational settings. Taking this route would allow changes to be made more quickly and easily than changing the primary legislation.

If AEP was to be abolished entirely, worse outcomes could result and a substantial amount of actuarial work would need to be done to assess the impact of incorporating the affected workforce into the ACC Work Account (in April 2022, 21% of New Zealand’s total workforce was covered by AEP).

For the reasons outlined above, the options of making fundamental changes to AEP via primary legislation and abolishing AEP entirely were discarded. Instead, it was decided that MBIE and ACC would progress changes to AEP via changes to the AEP Framework.

Further co-design was undertaken after options clarified

In response to direction from the Minister, ACC undertook a further co-design process to strengthen and further develop the proposed changes to AEP. As with the TOM, ACC invited all relevant parties to confirm the ‘pain points’ and work together to identify opportunities to improve the programme. This work built on the findings of the TOM and recommended the following improvements to AEP:

  • Introduce qualitative and quantitative information requirements to understand the experience of workers in AEP 
  • Introduce stronger claims and injury management requirements to ensure AEs and TPAs are effectively managing their workers’ claims 
  • Utilise health and safety assessments which are recognised by external regulators 
  • Develop a performance framework to effectively measure and monitor the performance of AEs 
  • Hand back all claim files regardless of claim status at the end of the claims management period. 

Covid delayed consultation and proposals were further refined

ACC was due to begin consultation on the 2019 co-design vision in mid-2020 but due to COVID-19 the then ACC Minister agreed to delay this consultation.

In 2020, with approval from the ACC Board and the Minister, ACC continued working on foundational changes to AEP not requiring Framework changes. 

In 2021, further work was undertaken by ACC to refine the co-design vision into fully fleshed proposals ready for consultation. This led to the four main proposals covered in this consultation document: 

  • Implement new health and safety assessment requirements 
  • Strengthen the assessment of Claims and Injury Management 
  • Introduce a Performance Monitoring Model 
  • Introduce additional pricing options for AEs on the Partnership Discount Plan 

There is a table in Appendix 3 that shows how these proposals reflect the co-design process and address the findings of the MBIE review.

Appendix 3 — How consultation proposals reflect co-design processes and MBIE review findings

In addition, to further enhance AEP it is proposed to test whether there is support for requiring the full and final settlement of claims at the end of an AE’s claim management period, for those on the Full Self Cover plan.

Relationship between proposals and Framework changes

As indicated above, not all the proposed AEP changes require a change to the AEP Framework (secondary legislation). The particular proposals considered to require a Framework change to implement are outlined below.

External health and safety assessments

It is proposed to require external health and safety assessments not administered by ACC. This means the audit provisions in the Framework will need to be amended to specify assessments may be undertaken by third parties on ACC’s behalf, and to provide more flexibility on the frequency of the assessment.  

Performance monitoring and plan options

It is proposed to establish a range of performance measures for individual employers to determine their level of performance against the Framework eligibility criteria. This will assist in determining an AE's ongoing eligibility to the range of FSC and PDP plan options and might affect audit frequency. This means the Framework will need to be amended to allow ACC to restrict eligibility to product options based on an AE’s level of performance.

Claim Management Period options

For the PDP plan it is proposed that ACC offer further claim management period options which end 3 or 4 years after the year in which the injury was suffered. The Framework currently allows only a maximum of 2 years so will require amendment.

Additional minor changes to the AEP Framework

AEP has evolved significantly over the last 22 years, and the current Framework is no longer fully reflective of current practice. We are therefore also proposing to make all the technical changes required to ensure the Framework reflects long-standing ACC practice.