By Maggie Tait of NZPA

Wellington, Oct 9 NZPA - ACC's future is at risk, chairman John Judge said today when announcing its liability ballooned by $4.8 billion in the year to June 2009 driven by increased claims, declining rehabilitation and more realistic assessments of costs.

Mr Judge said levies would need to rise as the scheme's claim liability -- the future cost of existing claims -- was $23.8 billion. Current net assets which ACC would cover future costs with was $11 billion, leaving a $12.8 billion gap.

Key drivers of the liability growth were:

* a historic growth in claims numbers of 4 percent per annum, more than population growth;

* increased healthcare and rehabilitation costs -- in some cases 20 percent higher per annum;

* 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.

Mr Judge said previously the focus had been on current costs rather than long-term.

"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 the future of the scheme was at risk.

"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 was not immediate with ongoing longer-term costs the key issue.

"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."

ACC was making changes to reduce external cost pressure and improve rehabilitation performance.

Measures included negotiating better deals with health professionals, better management of claims, tighter periods for support, limiting support to what was legally required, and reducing administrative costs.

ACC was targeting savings of over $2 billion.

Mr Judge said the savings were necessary but nowhere near enough to close the liability gap.

"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."

The Government had also already announced a stocktake of ACC.

"However, in addition to all of these measures, substantial levy increases are also required, particularly for motor vehicle owners, and earners (ie 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."

ACC Minister Nick Smith would make final decisions.