ACC's liability grew by $4.8 billion in the year to June 2009, Chairman John Judge announced today.

The Scheme's claim liability (the future cost of existing claims) now stands at $23.8 billion - against current net assets (the money ACC has 'in the bank' to cover those future costs) of $11 billion. The gap is $12.8 billion.

Mr Judge said the key drivers of the liability growth were:

an historic growth in claims numbers of 4% per annum - outstripping population growth healthcare and rehabilitation costs rising in some cases at 20% per annum - faster than inflation declining rehabilitation rates increases in the scope of the Scheme and entitlements a revaluation of the assumptions underpinning the liability to take a more realistic view of future claims costs.

"Historically the focus has been on current costs rather than the long-term cost implications of accidents. That's at the root of our problem," said Mr Judge. "The gap between ACC's assets and liabilities of $12.8 billion is the equivalent of 3.6 times our annual levy income. Five years ago, the gap was only one year's levy income.

"The lack of focus on long-term costs, and the under-funding has meant the gap has been growing at an alarming rate," Mr Judge said. "This is not a sustainable position for New Zealand and a programme of actions to address this serious problem must be put in place.

"We have got to a point where the continued existence of the Scheme is under threat. We must act now to protect it for the sake of all New Zealanders. "The risk of failure is not immediate, since a significant proportion of our liability consists of ongoing costs associated with longer-term serious injury claims, which don't have to be met for some years yet.

"However, failure is a very real prospect if we don't put in place a series of actions that will result in funding to cover our liabilities. The problem is of such a magnitude that I believe the programme of actions will take about 10 years to recover the situation."

Mr Judge said that ACC had begun implementing wide-ranging measures aimed at reducing external cost pressure and improving rehabilitation performance. For example: improving the way we manage claims negotiating better value for money and outcomes from health professionals being tougher on the extent and duration of ACC support, such as weekly compensation ensuring we're not providing more or less than we are legally required to provide encouraging more personal responsibility for "getting-back-on-your-feet" after an injury reducing administrative costs

ACC is targeting savings of over $2 billion.

"These are meaningful savings, but nowhere near sufficient on their own to close the gap of $12.8 billion and achieve long-term sustainability for the Scheme," Mr Judge said.

"We are working with Government on the need for legislative and regulatory change to ensure that ACC has the ability to properly manage the costs of the Scheme. In addition, the Minister has recently announced a "stock-take", which is fully supported by the Board.

"However, in addition to all of these measures, substantial levy increases are also required, particularly for motor vehicle owners, and earners (i.e. those in the paid workforce)."

ACC will begin consulting next week on its 2010/2011 levy proposals.

"The prospect of levy increases will be unpalatable to many New Zealanders," Mr Judge said, "especially since this is a time when people are hurting as a result of the current economic climate. However, if we don't improve ACC's financial position now, the gap will continue to grow and we will simply be passing the problem on for future generations to deal with.

"After public consultation on levies, the Board of ACC will make recommendations on any increases to the Minister and the Government will make the final decision.

"The ACC Board strongly supports the principles of the ACC Scheme, but we need to make it right for the times and right for the future."