Australia’s workers’ compensation landscape is undergoing pronounced challenges—costs are rising, claim durations are lengthening, and, most notably, the complexity of claims is increasing. Particularly, psychological injury claims are driving a systemic shift, affecting not just insurers and the workforce, but directors and boardrooms across the country.
Escalation in Large and Long-Duration Claims
Recent data from WorkCover WA highlights a dramatic rise in high-value claims. Claims exceeding $500,000—referred to as large losses—have nearly quadrupled between 2014 and 2023. Consequently, these significant claims now comprise a much larger share of total scheme costs, with their cost proportion expanding by 233% over nine years. Compounding the impact, claims requiring longer periods off work are surging; in Western Australia, cases involving 60-plus days of lost time rose from 39.3% in 2020/21 to 45.7% by 2023/24.
Psychological and Complex Claims: The New Frontier
A major contributor to rising costs and durations is the marked increase in psychological and complex claims. Whilst overall claim frequency remains stable, the average cost per claim is rising, largely due to mental health-related cases.
Nationally, between 2000 and 2017, the average time off work for mental health claims climbed 86%, while costs soared 209%. Australian mental injury claims now average about $65,000 per serious case—over three times that of physical injury claims.
Some regions are experiencing particularly sharp increases. In Victoria, mental health claims now account for 16% of all claims, a significant leap from just 2% in 1985. Meanwhile, New South Wales has seen both the frequency and average costs of psychological claims double in recent years. These trends show no sign of slowing, with emerging issues like dust diseases adding further strain.
From 1 December 2025, all Australian jurisdictions will have work health and safety (WHS) regulations in effect governing the management of psychological hazards in your organisation’s workplaces. This recognises that psychosocial hazards, such as violence, sexual harassment, bullying, fatigue, stress and job demands, are just as harmful as physical hazards.
Financial Pressures and Return-to-Work Challenges
The financial effects of complex claims are clear. In 2021-22, New South Wales paid $4.6 billion in total claims costs, which climbed to $6.2 billion for 2024-25. Over the same period, publicly managed workers’ compensation schemes have faced average premium rate increases of 23%.
Long-duration or complex claims are particularly costly. Safe Work Australia data reveals that, in 2021-22, only 21% of accepted claims involved absences of 13 weeks or more—yet those claims accounted for more than three-quarters of all compensation paid.
Psychological claims take longer to resolve with only half of affected workers returning to work within a year versus 95% for physical claims. In addition, physical injuries can have a “secondary psychological” component, compounding costs when psychological symptoms follow physical injury.
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The Role of Psychosocial Hazards and Workplace Programs
Psychosocial hazards—workplace factors that may cause psychological harm—are an increasing focus for regulators and employers. Poor job design, adverse social environments, and mismanagement can all contribute to psychological risk and, in turn, to complex claims and high costs. Delays in returning to work not only amplify financial exposures but can worsen health outcomes for workers, underscoring the necessity of early intervention and robust, supportive return-to-work programs.
Directors’ Statutory Duties: Beyond Compliance
For Australian directors, these challenges translate to significant legal and governance obligations and extend to long term matters of reputation and performance.
Directors bear personal liability under Work, Health & Safety (WHS) and workers’ compensation laws. Key WHS duties include:
Due Diligence: Exercising due diligence to ensure the organisation complies with its WHS obligations.
Oversight: Staying informed of WHS matters, understanding operational risks and processes, and exercising due diligence to ensure compliance mechanisms are in place.
Directors can face substantial fines or even imprisonment for serious breaches, with Category 1 offences under model laws carrying penalties of up to $300,000 and/or five years in prison.
Directors must also satisfy themselves that companies hold appropriate workers’ compensation insurance, manage claims efficiently, and support rehabilitation and return-to-work efforts.
Immediate and Strategic Responses for Directors
The landscape’s growing complexity demands a proactive and strategic approach from boards. When an incident occurs, companies should:
Launch prompt investigations: Quickly identify causes through internal inquiries and root-cause analysis
Notify Regulators correctly and swiftly: Prevent further liability by understanding—and meeting—reporting requirements.
Engage in pro-active crisis communications where appropriate: Be transparent and empathetic, both internally and with the public, reinforcing their commitment to safety and wellbeing. Directors do not need to lead the communications, however they must make sure that they have oversight of the communications and the organisation is presenting as transparent and empathetic.
Boards have an important role in overseeing incident response plans and their implementation and should require appropriate reporting from management.
Directors have access to a range of external support:
- Risk Consultants & Insurance Brokers: Assist in risk identification and mitigation strategies.
- Rehabilitation Providers: Partner on return-to-work programs.
- Insurers: Offer coverage and advice on managing claims.
- Legal Advisors: Provide guidance on compliance and incident aftermath.
Building a Resilient Safety Culture
Proactivity is essential. Directors should:
Stay informed about regular risk assessment outcomes and updated protocols as new risks or trends emerge.
Invest in comprehensive board-level WHS training and reporting.
Oversee the embedding of a “safety first” culture that drives hazard reporting, open discussion about workplace concerns and near misses, and action that provides a safe workplace and safe work practices.
Ultimately, directors who understand the evolving work environment and adopt robust governance and risk strategies place their organisations in the best position to deliver sustainable value—balancing compliance with true, lasting employee wellbeing.
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