Competition and Compensation: The Privatisation of ACC

Andrew Stritch

The privatisation of former government ventures has become one of the defining characteristics of New Zealand’s economic and social restructuring. This process has generated controversy, and is likely to become more controversial with the proposed inclusion of the accident compensation scheme, which is one of the central strands of New Zealand’s social security network.

This paper critically evaluates the main arguments in favour of privatisation suggested by the insurance industry and its allies, which can be grouped under three headings: (1) enhanced efficiency and costs, (2) better choice through competition, and (3) improved fairness to employers and safety to workers.

I argue that in fact privatisation would result in a system characterised by higher costs and/or lower benefits, cross-subsidies would not be eliminated, and the resulting system would be a lot less fair to certain segments of society such as non-earners, general taxpayers, small businesses and the victims of occupational diseases.

I conclude that New Zealanders would not be better off with a scheme run by private insurance companies, and that serious adverse consequences for both accident victims and premium payers would outweigh any benefits.