Chapter 3: The operation of the Seafarers Safety Net Fund
- 3.1 The Seafarers Safety Net Fund
- 3.2 Recent history of the Fund
- 3.3 Setting the levy rate at July 2002
- 3.4 Reserves to underwrite claims on the Fund
- 3.5 Fund administration
- 3.6 Levy collection
- 3.7 Claims on the Fund
- 3.8 A policy of insurance for the Fund
- 3.9 Future arrangements for management of the Fund
- 3.10 Summary of receipts and expenditure
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; or
- applies to take the benefit of any law for the relief of insolvents; or
- compounds with the employer’s creditors for their benefit; or
- if the employer is a body corporate – is wound up, or, ceases to exist; or
- no longer engages in trade or commerce in Australia:
and 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 then Minister for Employment and Workplace Relations 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.
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 maritime employers. 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:
- the need to ensure that the Fund has adequate financial reserves for the purposes of its prudential management;
- reasonable estimates of the Fund’s present and future liabilities under the Seafarers Act; and
- 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 Pty Ltd, an actuarial firm, 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 Shipowners 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. The levy has remained at this rate over the period 1 July 2002 to 30 June 2004.
3.4 Reserves to underwrite claims on the Fund
During 2003 – 04 the Authority obtained further actuarial advice from Taylor Fry Pty Ltd on the reserves required by the Fund in light of the continuing unavailability of insurance for the Fund, in light of higher prudential standards applying generally in the insurance market and in light of the unavailability of insurance for terrorism related events. As a result of that actuarial advice the Authority agreed that a prudent level of reserves to be accumulated to meet potential liabilities on the Fund is $550,000.
At the current rate of levy it is estimated that the reserve accumulation will be achieved by the end of 2004 – 05. The Authority is keeping the rate of levy and the reserve accumulation under review for provision of advice to the Minister as necessary.
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 certain 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 Levy Returns, provides Fund reconciliation reports to the Seacare Authority and provides advice to the Seacare Authority on claims against the Fund.
3.6 Levy collection
In 2003 – 04 $327 593 was collected in levy receipts from Seacare scheme employers. This levy was collected from 22 employers who reported an average of 1 610 seafarer berths, each quarter. An overview of levy collection details based on AMICA reports to the Seacare Authority is set out in Table 5 below.
Table 5: Levy collection summary 2002 – 03 to 2003 – 04 – key data
3.7 Claims on the Fund
There were no claims on the Fund during 2003 – 04.
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 March 2004 Marsh Pty Ltd advised the Seacare Authority that following a comprehensive search in the Australian and global insurance markets it was not able to secure a policy of insurance for the Fund. The Minister for Employment and Workplace Relations has requested that the Authority maintain a search for insurance for the Fund. As a consequence the Authority has committed to once again engage a broker in the second half of calendar year 2004 to step up the search for insurance.
3.9 Future arrangements for management of the Fund
The intention of the Government is that management of the Fund be returned to industry as soon as possible. In the absence of legislative amendment, the key pre condition for return of the Fund to a trading corporation approved by the Minister will be the availability of insurance for the Fund. Options for the future underwriting of the Fund are under consideration as part of stage two of the review of Seacare scheme legislation. 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.
3.10 Summary of receipts and expenditure – Seafarers Safety Net Fund
Table 6 below summarises receipts and expenditure of the Seafarers Safety Net Fund for
2002 – 03 and 2003 – 04. The audited financial statements for the Seacare Authority, including for the Seafarers Safety Net Fund, appear at Appendix 1.
Table 6: Seafarers Safety Net Fund – Summary of receipts and expenditure 2002 – 03 and 2003 – 04
Seafarers such as those in the photo are covered by the Seafarers Safety Net Fund in the event they had no employer or insurer against whom to lodge a workers’ compensation claim
