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EMA busts another privatisation myth

Written By: - Date published: 6:00 pm, October 20th, 2009 - 32 comments
Categories: ACC, business, national/act government - Tags:

When asked to explain why they want to start privatising a world-leading institution like ACC, National and ACT tend to fall back on the excuse that it will somehow lead to lower ACC premiums.

Of course, the international experience and every independent report that’s been done shows the exact opposite, but they can always point to the one year of privatised ACC we enjoyed under National from 1998-1999 where the initial premiums were relatively low.

The Employers and Manufacturers Association (Northern), one of National’s staunchest right-wing allies, has now helpfully busted that myth:

“The single year when we had a private market for ACC turned into a bun fight between insurers trying to capture business and employers trying get accident insurance within prescribed time frames,” Mr Jarvie said.

“Insurers at the time cut premiums to capture market share early on.

“Most commentators agreed at the time that the ensuing years would have seen large premium increases to offset the low entry price points.

“Having a full private insurance market won’t provide stability in the premium setting market, and it would make more forecasting and budgeting work for employers.

Of course, the Left’s been arguing that for years, but it’s good to have the EMA putting it on the record once and for all.

So now that’s cleared up, let’s stop pretending privatisation is about lowering premiums for workers and employers and face up to the fact it’s about rewarding National’s mates in the Insurance Council with $200m of our money.

Remember, that $200m isn’t coming out of nowhere. We’ll all pay for it sooner or later through higher premiums, endless court battles and denied compensation. So why the hell are we letting it happen?

32 comments on “EMA busts another privatisation myth ”

  1. Greg 1

    Mate, that is absolute bollocks. Everybody assumed they were loss leading, but the reality was exactly the reverse. The private insurers actually had to over price to cover themselves for the possibility that labour won the 1999 election and re nationalised ACC. Which of course is exactly what happened. Had that uncertainty not existed the levies would have been even lower.

    I suggest you talk to some people in the industry.

    • toad 1.1

      What, talk to some people in the insurance industry, Greg. As if that will give you a balanced perspective!

      When even the Nats’ staunch backers, the EMA, are dirty on the ACC privatisation policy, surely it makes you wonder how many pre-EFA $$$ went into the NACT coffers from the insurance industry.

      • Greg 1.1.1

        Toad. Yes insurence companies are all about profit, thats exactly why the notion that providers were offering levies below cost are ridiculous. I can’t remember the details but I seem to remember National was going into the 1999 election with a high chance of losing. This meant a high possible cost for the insurence companies, so their levies had to compensate for this. I just don’t see how you can justify the loss leading argument.

        • Do you know what a loss leader is? it appears not.

          I do not really see why they would charge extra in case of Labour changing the law back either, there is bugger all cost in an existing insurance company dropping a product.

    • I understand they were asked this very question directly by a Labour backbencher during the select committee process. He asked what allowance did they make for the possibility of a change of policy and they said “none”.

      They should try harder.

  2. Bryan 2

    Privatising ACC or how to trash something admired around the world:

    1. I wonder what the adventure travel industry thinks about the direction this is all heading. I wouldn’t want to be a Queenstown adventure tourism business in a privatised environment – bungy jumping, whitewater rafting, fly by wire, jet boating the list goes on. Privatising ACC – taking the adventure out of Queenstown – the town formerly known as the world headquarters of adventure tourism.

    2. Anyone who has ever taken a child to a playground in Australia, will have noticed that the equipment is nowhere near as exciting as it is in New Zealand – no flying foxes for example. Privatising ACC – taking the adventure out of childhood.

  3. Bloody socialists…

    This will mark the end of New Zealand society as we know it …

  4. Greg 4

    I’m not sure what your arguing bryan and I’m not exactly sure how current ACC policy works but either your proposing that levies will go up because of privitisation (which is untrue) or levies will go up for some and down for others because businesses will be forced to pay the true cost of their insurence. If this is your argument, what logical reason is therte for any other NZ business subsidising adventure tourism? If its not see above.

    Also privitising ACC does not mean a reinstatement of the right to sue. So how are playgrounds relevant?

    • “…privitising ACC does not mean a reinstatement of the right to sue…”

      It should do. ACC is meant to make sure that resources are spent on rehabilitation, not on lawyers. As soon as you have a company involved they want to reduce the exposure and increase the profit. They will fight so many claims. They will not be interested in rehabilitation, just profit maximisation.

      If you prevent the right to sue then ordinary people get really really shafted.

      The most fascinating statistic for me is that the US spends 15% of its GDP on health and has one out of every 7 citizens without coverage. In New Zealand we spend about 8% and so far everyone is covered.

      • Tigger 4.1.1

        This is a good argument for the debate – we need the right to sue returned if private enterprise is to be involved.

        I imagine the EMA would have something to say about employers suddenly being liable under multi-million dollar law suits.

      • Greg 4.1.2

        Now I’m not holding the US system up as a something we should copy – its terrible. But that’s what happens when you privitise and then go back and slap a whole lot of regulations on the industry.

    • Draco T Bastard 4.2

      I’m not exactly sure how current ACC policy works

      You should apply that to everything as it’s obvious that you just don’t a friggen clue.

      that levies will go up because of privitisation (which is untrue)

      No, levies will go up due to privatisation. They will have to so that the insurance companies can make their estimated $200m/year profit.

      • Greg 4.2.1

        I suggest you go easy on the personal attacks – it tends to undermine your argument.

        The beauty of the private sector is that they can make a profit AND offer us cheaper levies – we saw it in 1998-1999, the two are not mutually exclusive.

        • Draco T Bastard

          they can make a profit AND offer us cheaper levies

          No, they can’t, simply because everything has a price that can’t be reduced and ACC is already running at that price.

          we saw it in 1998-1999,

          No we didn’t – we saw artificially lower levies (loss leading) and artificially higher court cases (court cases are cheaper than actually paying out).

          the two are not mutually exclusive.

          They are if the service is already being provided at cost price.

          • Greg

            Come on Draco. Every price can be reduced, a change in technology, increase in the capital stock etc etc all move the production function. When your running a business for profit you have a very strong incentive to maximise efficiency and invest in research and development to give yourself the market edge – incentives the government simply does not have.

            As I’ve stated time and time again, the loss leading argument is ridiculous. You must acknowledge there are costs associated with bringing in a product that could soon dissappear? Despite what one gentlemen above said. It is no small investment to develop a product, market it, and sell it. And these insurance companies did all this knowing that there was a high chance their product would be legislated away!

            • George.com

              Greg. If you have had experience with insurance you will know that loss leading does occur. I have worked in insurance and saw companies introduce low cost products. Very soon after however premiums increased as losses were unsustainable. The 1998 ACC prices were loss leading.

  5. Ag 5

    “…because businesses will be forced to pay the true cost of their insurance.”

    Given that it is well known that insurance markets are subject to forms of market failure, this is a dubious proposition at best.

    But it looks like facts won’t matter that much in this “debate”.

  6. Greg 6

    How are insurence markets subject to market failure?

    • BLiP 6.1

      Insurance markets are subject to failure when the “customers” band together without the assistance of business and do it for themselves, with cheaper and better results. ACC is an international example of just how superfluous the entire industry is to an economy when a government manages the risk of behalf of all citizens.

      Must drive you crazy.

    • Ag 6.2

      Adverse selection is one reason – in other words, you’ll tend to attract bad customers because they know more about their own situation than you do. Another is that some people of limited means won’t take up things like car insurance, because they know they can declare bankruptcy or be tardy on payments, which means that the insurance company (i.e. its customers) end up paying for it. Moreover, some perfectly good customers won’t be able to buy insurance because they fit into a risky demographic (like young men with sports cars).

      That’s why in many places governments make car insurance compulsory.

      Hell, paying tax to support the police is a kind of compulsory insurance. I’ve never really had need to call on the police for anything, but we all have to pay them just in case we need their services. The people who call the cops out are really just people collecting on the insurance they’ve paid.

      Another way of thinking about it is to think of all the things that people might want to insure themselves against, and then look at the very limited number of things you can actually buy insurance for on the private market. That shows how hard it is to get a working insurance market going.

      The government corrects for such failures in various ways like making certain sorts of insurance compulsory and in the case of things like unemployment insurance and health insurance, by acting as the insurer itself.

  7. Akldnut 7

    Greg, Greg, Greg!
    Its insurance, insurance, insurance,

  8. Amity 8

    Crazy is a good thing sometimes.

    Because when one is ‘crazy’ one can be ‘free’.
    Thank you for your comment, I now understand your ‘loser’ approach for not being ‘able’.
    Finally I now ‘know’. You are just a ‘dick’.
    And easy to forget.

  9. Adrian 9

    A self employed builder who has worked in Aussie and NZ, pays ACC $3500 here and 13 and a half % of income over there for the same cover. Three to four times as much. Case closed.

    • Jasper 9.1

      So a builder earns say $60,000, self employed. In NZ levies are “$3500” in Australia it’s likely to be around $8000 if 13.5% is applied?

      I don’t know anything about the Australian model, but wouldn’t a builder be able to “reduce” their income if they’re self employed, much like builders in NZ do by diverting it through various mechanisms thereby reducing their levies?

  10. Do explain why the model admired all over the world is always admired from afar, and nobody has replicated it?

    The only argument I heard was a conspiracy among insurance companies and politicians, but this sort of thing wouldn’t stop Scandinavian countries adopting it.

    It would be helpful to understand why something that is held up as a totem of achievement by many, is simply ignored elsewhere.

  11. A Nonny Moose 11

    Death Panels for Smoochie!

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