When NSW Treasurer Dominic Perrottet stood on the podium at a glitzy black tie awards night for the who’s who of the $60 billion workers compensation sector in November 2019 and gushed about icare’s achievements, few were buying it.
Apart from icare’s senior executive team and board directors, and a bevy of contractors and consultants who had done well out of the state government controlled workers compensation scheme, that is.
Perrottet’s glowing speech was widely recognised as a signal to the industry regulator SIRA, which was preparing to release a damning review into icare. Draft copies of the review had already been handed to icare executives and directors, including then boss John Nagle, and Treasury, outlining serious concerns with icare’s management.
To the astonishment of many, the Treasurer has continued to praise icare and its management team, despite mounting evidence of financial and operational mismanagement by the the workers compensation organisation. This week, that steadfast support began to cause Perrottet significant political problems, culminating in the resignation of his own chief of staff and calls for him to step aside.
A joint investigation by The Sydney Morning Herald, The Age and Four Corners on July 27 revealed that icare is facing a looming financial disaster and that the regulator and bureaucrats in Treasury have been ringing the alarm bells about it since mid-2018. But the Treasurer, icare executives and the board insist the situation is not as dire as others say it is. “The icare team and the executive icare team do a superb job,” the Treasurer said last week, the day after the joint investigation broke.
Earlier this week Nagle resigned after a grilling in parliament, which revealed he had been sanctioned by the board last year for “deficient” disclosure of a contract awarded to his wife. He said he lost his short term bonus as part of the sanction and threatened to resign.
In an attempt to silence the critics Perrottet announced a review of icare by a retired judge, but the lack of transparency over contracts it has awarded and its financial position mean many questions remain unanswered.
On Thursday evening Perrottet’s office was thrown into turmoil and his chief of staff resigned after revelations the salaries of two of his personal ministerial staff were paid by icare and had not been documented as required by regulations.
The resignation of Nigel Freitas followed a series of questions from the Herald about the pay details of senior policy adviser Edward Yap and an administrative assistant, whose salaries while on secondment were paid for by icare.
Problems with the regulator
When Nagle and his colleagues got hold of SIRA’s draft report in late 2019 they were far from impressed.
Internal emails sent from Nagle to the secretary of the Treasury indicate a growing frustration with the regulator, referring to questioning and scrutiny from key bureaucrats in Treasury as evidence of “the one way nature of the ‘whispering’ campaign that comes from SIRA.”
SIRA’s draft report outlined financial mismanagement by icare including incorrect weekly payments to injured workers, duplicate payments for diagnostic services and serious failures in its automated claims management system. This had resulted in almost 50 per cent of workers being incorrectly classified and was “leading to delays in treatment of injured workers,” internal Treasury notes say.
The draft report said icare’s move to a single claims agent, EML, was similarly problematic as “EML staff lack the skills and experience for technical case management of personal injury claims” and EML has been” under-resourced since the inception of the new model and maximum caseloads have been exceeded” which was impacting claimant outcomes.
Shadow Minister Daniel Mookhey this week argued the Premier needed to stand aside the Treasurer while an independent investigation occurs. “Employers pay their premiums to get sick and injured workers back to work, not to fund the board and management’s delusions and the treasurer’s political operations,” he said.
NSW Greens MP David Shoebridge is also calling for the Treasurer to step aside until he has given a full explanation under oath at the parliamentary inquiry. “We have heard case after case of injured workers thrown off the workers compensation scheme, struggling in poverty, and now we hear that hundreds of thousands of dollars are being bled from the scheme to pay for the Treasurer’s staff.”
Icare was set up in 2015 to replace the old WorkCover scheme and is considered Perrottet’s ‘baby’. As finance minister he oversaw the new legislation, handpicked the board including its chairman, long time Liberal donor Michael Carapiet. Vivek Bhatia was appointed as the inaugural chief executive. When Perrottet was promoted to Treasurer in 2017 he retained ministerial responsibility for icare.
Is there anything we can’t do? Who will make it when pushed to the limit?
Promotional video played to icare staff
Insiders, who asked not to be named for fear of retribution, said discussions about privatising icare were common. The organisation insures 284,000 NSW employers and their 3.4 million workers and protects more than $193 billion of NSW government assets, including the Sydney Opera House, the Sydney Harbour Bridge, schools and hospitals.
The plan was to transform icare into an ASX 50 company. The mantra was think big and don’t behave like a public sector entity.
To that end, almost $2 million was spent on putting a neon sign at the top of the Kent Street building, floors were renovated with expensive fitouts, an internal staircase built, and slick self-promoting videos made by professional film makers became the norm.
Inspirational speakers were brought in to rally the troops, including a woman shortlisted to travel to space as part of a select group who would one day colonise Mars. “Is there anything we can’t do? Who will make it when pushed to the limit?” the Mars 100 promotional video played.
Bhatia’s lofty aspirations were shared with a group of executives who had worked with him at Wesfarmers Insurance and subsequently joined icare: John Nagle, Beth Uehling, Andrew Ziolowski, and Tony Pescott among them.
The executives had no workers compensation experience but shared the vision and the big executive salaries and bonuses. They also wanted to make sure that although icare was a government-run entity, it would be a private enterprise in every other sense.
An icare foundation was set up as a promotional vehicle with few checks and balances, and five insurance agents became one, EML, to manage all new claims.
A new claims management system was built by CapGemini and spearheaded by Bhatia. The software platform was built by Guidewire, which took Nagle on a trip to Las Vegas to speak at a conference – a trip that wasn’t declared in icare’s annual report, according to Nagle’s answers in parliament this week.
The CapGemini and Guidewire contracts and related consulting costs totalled $360 million.
The Herald can also reveal that icare’s then chief risk officer declared to icare that he went to Dallas, Texas with RSA Archer in October 2017 and stayed at the Hilton. According to an icare Gifts and Benefits declaration obtained by the Herald, the chief risk officer said RSA Archer software was purchased in early 2017.
The form was signed by Bhatia. Internal emails reveal that a gift declaration was lodged months after the trip when compliance started querying it. “I understand that RSA Archer paid for your flight and accommodation expenses. I have checked the Gifts and Benefits register and found in accordance with the icare policy you have not provided the compliance team with a signed declaration.”
The chief risk officer’s response was, “yes, the international travel and offer to pay my expenses was discussed with Vivek [Bhatia] who, in accordance with our internal Travel Policy, informed the chairman of the board.”
Weeks after the launch of the new claims management system Bhatia quit icare and went to work at QBE Insurance, leaving behind Nagle and his Wesfarmers friends to continue their work. (On Friday Bhatia announced he had resigned from QBE Australia to become CEO of ASX-listed information solutions company Link Group, which is chaired by icare chairman Michael Carapiet and includes another icare director Peeyush Gupta, who also sits on the NAB board.)
Within months of icare’s claims model rolling out alarm bells were ringing that its finances were going backwards and the model wasn’t working.
One email dated June 6, 2018, from NSW Treasury notes that the regulator is “increasingly concerned about the financial viability of the workers’ insurance scheme”. Concerns include ongoing losses, problems with icare’s policy system, and service charges, which it says are high relative to other jurisdictions.
They relied on investment returns to keep the scheme buoyant, which some say was high risk.
When things started to unravel, the blame game began. Insurance agent EML, the new systems, external medical providers and the economy were all blamed for the cost blowouts. As one insider said; “Spin, spin, spin.”
Inside icare, morale has been falling. Icare’s people matters survey, a NSW public sector employee survey, indicates co-operation across teams has been falling. It also reveals that in the past 12 months 16 per cent of staff surveyed at icare had witnessed misconduct/wrongdoing at work, up from 11 per cent in the previous year. It said 61 per cent had reported it.
Insiders refer to a toxic culture where, in their experience, only good news is tolerated.
Some big corporations have also quit the scheme. According to SIRA, in the last 3 years the number of businesses opting to self insure has increased by 28 per cent to 67 in total. They include Wesfarmers, Australian Unity and Aldi.
In a statement, icare said it is not unusual to see variations in NPS scores, particularly during a transformation. It also added that employers adopting self-insurance is not uncommon for larger businesses, where they have the resources to manage the function in-house. Employers sometimes find it more efficient to manage their workers compensation scheme nationally, where they have employees across multiple states, it said.
SIRA is currently assessing four applications for self insurer licences and in the past six months it has approved four, which accounts for $38 million in premium.
“SIRA does not consider the number of businesses moving to self-insurance as a material risk on the finances of the workers compensation scheme. However, SIRA is concerned about feedback from large employers that is consistent with the issues identified in the Independent Compliance and Performance Review such as premium transparency and volatility, engagement with employers, claims management and return to work outcomes for injured workers,” SIRA said in a statement.
Last week the Herald revealed that another scheme operated by icare, the Treasury Managed Fund, required billions of dollars in taxpayer funding. In June $2 billion was put into the scheme and a recommendation was made to top it up with another $2 billion before the end of the year.
Despite all of these problems, icare executives are paid some of the highest salaries in the public service and received bonuses. The latest accounts reveal that the top six executives were paid an average $660,000 last financial year.
27-year old injured worker David Bruce is one of tens of thousands of injured workers who have faced problems with the new icare model. After suffering a back injury at work in September 2018, he was delayed and denied treatment and churned through 17 case managers, which resulted in secondary injuries.
He said if his injury had been treated properly, he would have been back at work far sooner and he wouldn’t be left dealing with permanent injuries. “I think icare do as much as they can to not care,” he said.
Dominic Perrottet would surely disagree, having repeatedly praised icare. But as the revelations mount, icare is becoming harder and harder to defend.
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Adele Ferguson is a Gold Walkley Award winning investigative journalist. She reports and comments on companies, markets and the economy.