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Most people who live in New Zealand have heard of ACC. But ask 10 people what it is that ACC does, and you will likely get 10 different answers.

Key points: 

  • What is ACC
  • What does ACC not do?
  • Self-employed versus employee

 

ACC, or the Accident Compensation Corporation, created in the 1970, is essentially a big insurance organisation. There is slightly more to it, but that definition will fit, for the purposes of our discussions around personal risk. The Crown’s insurer is there to financially step in, in case of personal accident or injury.

There are five buckets, or accounts where money is allocated for different purposes.

  1. Work Account

The Work levy is paid into the Work Account to fund cover for injuries that happen at work. It insures and protects businesses’ most important asset – their people.

  1. Earners’ Account

The Earners’ levy is paid into the Earners’ Account to fund cover for injuries that happen during everyday activities, eg on the sports field or at home doing DIY

  1. Motor Vehicle Account

The Motor Vehicle levy is paid into the Motor Vehicle Account to fund cover for people injured on public roads involving a moving vehicle.

  1. Non-Earners’ Account

There are people in New Zealand who don’t pay levies but still need support if they’re injured, eg children, beneficiaries, students or visitors to New Zealand. Funding to help them comes from the government through general tax.

  1. Treatment Injury Account

The Treatment Injury Account is to fund cover for injuries that are caused by, or happen during, medical treatment. It is funded by both the Earners’ and Non-Earners’ Account depending on whether the injured person is employed.

As an employee or self-employed person, you will pay levies towards the Work Account, for any accidents that are workplace injuries. If you are unable to work due to accident (and you qualify), you will receive up to 80% of your gross income. There are some caveats to that statement for self-employed people, which we’ll get to later. This income will continue while you are unable to work, however, ACC have a strict mandate to ‘assist’ people back to work as soon as possible. Their aim is to get people off-claim as soon as practical. Part of their method of doing this is to reduce their payments to you as you partially recover. This scaled reduction can cause angst for some claimants.

For the Motor account, if you think about the number of accidents it is understandable why it has its own account. In 2019 there were 352 road deaths from 300 fatal crashes. When I speak with people who think that they are bullet-proof, that they don’t need life insurance, or disability cover, then I read statistics like this… I can’t fathom the risk. Each of those deaths had a mother/father/brother/sister/child. How many were the main income earner for their household? What larger societal impacts are created from the death of a loved one? The financial costs of this loss are huge and are not all covered by ACC or any other government department. Life cover or Total and Permanent Disability cover is there to help provide financial protection when these types of events occur.

ACC is a great safety net for all portions of the population, but it has gaps. ACC is not mandated to cover all loss, under all circumstances.

What does ACC not do?

The key thing that people I speak with seem confused about, is that a heart attack, stroke or major cancer event are not accidents. ACC does not cover these events, nor anything else that is not an accident.

From the personal risk and loss of income perspective, having a stroke as a thirty-one-year-old which makes it impossible to work for 15 months is not an event that ACC can help you with. You will not get ACC support for this. If you have a young family that depends on your income for the household, ACC cannot help you. You are outside of their mandate. This is where you may want to consider some other forms of income protection or mortgage repayment insurance. Trauma cover may also be an affordable option to plug the gap in your income for a year or two.

Physical and age-related ‘wear and tear’, degeneration due to age or weakened joints from old sports injuries – these types of conditions are not high on ACC’s list of claimable conditions. Broadly, to get a claim from ACC, your condition must be related back to a specific, ACC-covered event and a certain point in time.

Having arthritis is not a specific event at a certain point in time. Having back pain from 20 years on the rugby field is not a specific event.

Assuming you don’t have too many pre-existing conditions, private medical cover can get you fixed up and back to work faster than the Public system. Faster access to health treatment, means your potential loss of income due to not being able to work is reduced.

Self-employed versus employee

I said earlier that as an employee you will receive up to 80% of your gross income. This is also true for self-employed people. However, the issue is in determining what your income is at claim time.

For this category of worker, there are two products that you can use:

  • ACC CoverPlus (based on last two years of returns)
  • ACC CoverPlus Extra (agreed value)

 

Self-employed persons will file their financial returns, usually through their accountant, and quite often towards the end of the required time within the IRD guidelines. For example, the end of the financial year for many is 31st March. Many returns are not filed until just before the following year. ACC pays claims based on the last two years. If your returns have not been completed, you can elect to use an assumed figure until you get your returns filed. However, if you underestimated your income, ACC will ask you to pay back their overpayment to you.

The second issue can be for those whose income fluctuates or can change year on year. If a tradie had a great year financially one year, then the next year didn’t do so well, this can affect how much they are entitled to at claim time.

For example:

 

2018/19

2019/20

Earned income (self-employed)

$100,000

$75,000

80% of Gross (potential monthly claim)

$6,667 per month

$5,000 per month

The claim is actually assessed as an average over the 2 previous years, but this highlights how fluctuating incomes can affect your potential ACC claim.

I hear many stories of self-employed people who feel like they didn’t get enough from ACC when they had an accident. The above could be one reason why. Remember too, that these claim amounts are still taxed income. Another reason is that there is a cap, or upper limit, on the income that ACC will pay. In our current year 2020/21, that maximum benefit is $130,911p.a.

ACC CoverPlus Extra allows you to ‘fix’ your benefit amount at an ‘agreed value’ up to a maximum of $104,729 (2020/21). This fixing can give some further certainty for claimants. This cover type also means that you do not need to have your annual financials completed in order to claim your correct benefit entitlement.

Your risk protection plan can incorporate ACC CoverPlus Extra and private insurance, thereby maximising your risk protection and minimising your costs. As with any insurance product, you need to be aware of the ‘pros and cons’ of any option.

ACC is fantastic for New Zealand. The financial safety net it provides everyone is incredible. However, ACC get a lot of ‘poor press’ and a sullied reputation mainly because of people’s expectations of what it is. ACC is an insurance organisation that minimises its risk while fulfilling its mandate. Like all insurance products, a certain amount of ‘buyer beware’ needs to apply. People can incorporate ACC as a functional part of their risk protection program, once they realise the benefits and limitations of the cover it provides.

Dominic Bish

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