Chapter 3: The Seafarers Safety Net Fund
Chapter 3: The operation of the Seafarers Safety Net Fund (the Fund)
3.1 The Seafarers Safety Net Fund
The Seafarers Safety Net Fund is a safety net "employer" to stand in the place of an extant employer if a default event occurs, enabling injured seafarers to make a claim against the Fund when there is no employer against whom a claim can be made. A default event is defined in the Seafarers Act as happening when the employer:
-
becomes bankrupt or insolvent;
-
applies to take the benefit of any law for the relief of insolvents;
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compounds with the employer's creditors for their benefit;
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if the employer is a body corporate— is wound up, or, ceases to exist;
-
no longer engages in trade or commerce in Australia;
and when the employer is unable to meet the employer's liabilities under the Seafarers Act.
3.2 Recent history of the Seafarers Safety Net Fund
On 10 April 2002, the Minister for Employment and Workplace Relations, the Hon Tony Abbott MP, revoked the appointment of the Australian Maritime Industry Compensation Agency Ltd (AMICA) as the approved trading corporation responsible for management of the Fund, and declared the Seacare Authority to have the Fund's functions, powers and obligations under the Seafarers Act.
The Minister's action was necessary because from 31 January 2002, AMICA was no longer able to obtain a policy of insurance for the Fund as required under the Seafarers Act. In such circumstances the Minister had no legal alternative other than to declare the Seacare Authority as the Fund manager.
As a result the Seafarers Rehabilitation and Compensation Levy Act 1992 (Levy Act) and Seafarers Rehabilitation and Compensation Levy Collection Act 1992 (Levy Collection Act) came into force on 10 April 2002. Up to April 2002, AMICA made financial calls upon AMICA participants to meet annual Fund costs.
The AMICA cost recovery arrangements contrast to those applying when the Levy Act and Levy Collection Act (and associated regulations) are in force. These Acts provide for a premium-based levy to be collected from all employers engaging seafarers on prescribed ships, each quarter, thereby spreading the costs of the compulsory levy across all Australian shipping companies. The levy, under statutory arrangements, is equivalent to a premium in that it is providing for workers' compensation cover.
3.3 Setting the rate of levy on commencement of levy collection on 1 July 2002
In the lead up to commencement of levy collection under Seacare Authority management, the Minister, as required by section 7 of the Levy Act, consulted the Seacare Authority on the rate of levy before making a recommendation to the Governor-General that a regulation be made establishing the levy rate. In advising the Minister, the Seacare Authority had to consider its prudential obligations as set out in the Levy Act, namely, that it have regard to:
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the need to ensure that the Fund has adequate financial reserves for the purposes of its prudential management;
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reasonable estimates of the Fund's present and future liabilities under the Seafarers Act; and
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the cost of administering the Authority in connection with the performance or exercise of the Fund's functions, powers and obligations under the Seafarers Act.
The Authority obtained actuarial advice from Taylor Fry to assist the preparation of advice to the Minister. The actuarial advice quantified the risk of a default event occurring and provided options on funding models to meet the costs of the Fund. The model agreed was a premium equivalent model. In addition, the Authority sought advice from AMICA on its Fund administration costs and from other sources in establishing the likely costs of administering the Fund under Seacare Authority management.
The Authority also sought the views of the Australian Mines and Metals Association (AMMA) and Australian Ship owners Association (ASA). Both AMMA and ASA advised the Authority of their qualified and cautious acceptance of the premium-based levy in the context of there being no alternative.
Having regard to actuarial advice, estimated Fund administration costs and the view of employers, the Authority recommended to the Minister that a levy rate of $53 per berth per quarter be set for the commencement of the 2002–03 year. The Minister accepted this advice.
The Seafarers Rehabilitation and Compensation Levy Regulations 2002 commenced on 1 July 2002, setting the rate of levy at $53 per berth per quarter. The Levy Act requires all employers who employ or engage seafarers on prescribed ships to pay the levy.
3.4 Quarterly review of the rate of levy
At the time of advising the industry of the new Fund management arrangements in June 2002, the Minister undertook to review the levy quarterly to ensure the levy rate reflected actual administration costs (some administration costs on establishment were, by necessity, estimates). The Minister also asked the Seacare Authority to advise him after six months operation of the Fund under Seacare Authority management, on its future administrative arrangements.
The intention of the Government, which is supported by the Authority, is that management of the Fund be returned to industry as soon as possible. At the time of transfer back to industry, any reserves accumulated to the Fund while under Seacare Authority management will be passed over to the industry trading corporation approved as the Fund, along with any liabilities on the Fund.
The Seacare Authority kept under review levy receipts and Fund costs each quarter during 2002–03. Following each quarterly review at the scheduled Seacare Authority meetings in August and November 2002, and February and May 2003, the Authority wrote to the Minister advising that the levy rate of $53 per seafarer berth per quarter should be retained for the following quarter.
At its February 2003 meeting, following consultation with employer stakeholders on the Seacare Authority, the Authority reviewed the operation of the Fund following six months of operation. It was agreed to recommend to the Minister that Seacare management of the Fund continue until at least 30 June 2003, given that the Seacare Authority itself had been unable to obtain a policy of insurance for the Fund to that time. The Minister accepted the Seacare Authority advice.
3.5 Fund administration
To help maintain industry continuity in the management of the Fund, and to draw on AMICA's past experience in administering the Fund, the Minister agreed that the Seacare Authority contract with AMICA to undertake Fund administration services for the Authority. A contract for performance on such services was executed in August 2002, to apply from 1 July 2002.
Under the contract AMICA administers Seacare levy collection on behalf of the Australian Government, manages the employer reporting arrangements by receiving and recording employer returns, provides Fund reconciliation reports to Seacare and provides advice to the Seacare Authority on claims against the Fund. AMICA has continued to manage the Seacare scheme claims database function.
3.6 Levy collection
In 2002–03 $293 461 was collected in levy receipts from 21 employers. These employers reported an average (per quarter) of 1 438 berths, on an average (per quarter) of 104 ships. An overview of levy collection details is set out in Table 5 below.
Table 5: Levy collection 2002–03 — key data
|
2002-03 |
No of employers |
No of berths |
No of ships |
Levy rate |
Levy collected |
|
|
required to pay |
|
|
|
|
|
|
the levy |
|
|
|
|
|
Quarter 1 |
21 |
1 429 |
109 |
$53 |
$75 737 |
|
Quarter 2 |
21 |
1 400 |
99 |
$53 |
$74 200 |
|
Quarter 3 |
21 |
1 443 |
102 |
$53 |
$76 479 |
|
Quarter 4 |
21 |
1 479 |
106 |
$53 |
$67 045 |
|
Average over 2002-03 |
21 |
1 438 |
104 |
$53 |
$73 365 |
|
Total |
21 |
|
|
|
$293 461 |
Source: Seacare
Table 6: Estimated and actual Fund costs, and Fund expenditure — 2002–03
|
Cost item |
Estimated Fund |
Estimated/actual |
Actual Fund |
Comment |
|
Insurance for Fund
|
$171,000 |
$179,858* |
$16,938 |
Insurance policy |
|
Professional fees |
$35,500 |
$21,725 |
$15,255 |
Broker services |
|
Insurance for partner |
$20,000 |
Nil |
Nil |
Not applicable |
|
Fund administration |
$55,400 |
$55,400 |
$41,550 |
Fourth quarter due in |
|
Claims administration |
Not estimated |
$32 |
$32 |
costs re claims |
|
Accumulation of reserve |
$22,500 |
$22,500 |
|
Only expended on claims |
|
Total of expenditure items |
$304,400 |
$293,515 |
$96,275 |
|
|
Total receipts |
|
$293,461 |
|
|
Source: Seacare
Note 1: Estimated berths/quarter in setting levy = 1 442
Note 2: Actual average berths per quarter = 1 438
As can be seen from examining Tables5 and 6, estimated Fund costs (administration costs and accumulation of annual reserve) and actual levy receipts are evenly matched, thereby vindicating maintenance of the levy rate at $53 per berth per quarter throughout the year. However, the tables also show that actual levy expenditure fell considerably short of levy receipts. The key explanation is that some accrued costs did not fall due in 2002–03.
Table 6 also shows that a reserve of $22 500 was accumulated in 2002–03, as the year one contribution towards a reserve of $270 000 determined by the Seacare Authority actuary as being necessary to build over 12 years.
3.7 Claims on the Fund
Since 10 April 2002, there has been only one claim on the Fund, received in May 2003. At 30 June 2003, no decision on liability had been made. As a consequence, no claim payments have been made from the Fund during 2002–03.
3.8 A policy of insurance for the Fund
In August 2002, the Seacare Authority engaged Marsh Pty Ltd, an insurance broker, to provide brokerage services to the Authority. Its brief was to prepare a submission for obtaining insurance for the Fund as required by the Seafarers Act and to consult the insurance market. In February 2003, Marsh advised that an insurer was interested in quoting on the insurance. From March until June 2003, detailed negotiations haven taken place with the insurer, resulting in the insurer providing an initial quotation and a draft policy to the Authority. The Authority continues to be assured by its broker that a policy of insurance can be finalised by the interested insurer.
Subject to the insurer offering the same or similar policy that it offers to the Seacare Authority, to a trading corporation, the key pre-condition for a return of the Fund to industry management will have been achieved. It is the Authority's objective to see the Fund returned to industry management as soon as possible.
3.9 Future arrangements for management of the Fund
The next phase in the future management of the Fund is to return it to industry under the current legislative framework. The Minister recognised at the time he revoked AMICA and declared the Seacare Authority as the Fund manager that the changed circumstances provided an ideal opportunity to consider the appropriateness of the current legislative requirements for the Fund, in the longer term.
Some in the industry consider that the current scheme structure was relevant in an era of industry employment but is not now compatible with current company employment practices.
In May 2003 the Authority commenced a review of the long term arrangements for management of the Fund by consideration of an options paper. The options will be further developed and considered during 2003–04.
3.10 Audited Financial Statement — Seafarers Safety Net Fund
The following Table is an extract from the Department of Employment and Workplace Relations' audited Financial Statements for 2002–03. These Financial Statements received an unqualified audit report.
Table 7: Seafarers Rehabilitation and Compensation Levy Act 1992 — Special Account
| Seafarers Rehabilitation and Compensation Levy Act 1992 Legal Authority: Financial Management and Accountability Act 1997; s20 Purpose: for the expenditure in connection with payments on behalf of the government |
2002-03 $ |
| Balance carried from previous year | |
| Appropriations for reporting period | |
| Receipts from other sources | 293 461 |
| Other receipts - Industry contributions | |
| GST credits (FMA s30A) | 6 709 |
| Available for payments | 300 170 |
| Payments made to suppliers | 74 434 |
| Balance carried to next year | 225 736 |
| Represented by: | |
| Cash | 225 736 |
| Total | 225 736 |