What’s Really Happening in NSW Workers’ Compensation:

A Closer Look at Psychological Injury, Rising Costs, and System Strain

I come to this work as a researcher who has spent years listening to workers’ experiences of injury, recovery, and return to work — particularly where psychological harm is involved. Again and again, I see the same pattern: people are not only injured by their work, but often further harmed by the systems meant to support them.

Workers’ compensation data is frequently discussed in abstract terms — costs, sustainability, claim volumes — yet behind every data point is a person navigating pain, fear, uncertainty, and often profound loss of dignity. Psychological injury, in particular, exposes the limits of systems designed for a very different era of work.

That is why I pay close attention to reports provided by the NSW State Insurance Regulatory Authority. Not because they are perfect documents, but because they offer a rare, system-level view of what is actually happening — where the pressure points are, what is getting worse, and where change is overdue.

This article draws on those findings to ask a simple but urgent question: what responsibility do leaders and organisations have when the evidence is this clear?

Over the past few years, Australia’s workers’ compensation systems have been under increasing pressure — and nowhere is this more visible than in New South Wales.

In 2022, the NSW State Insurance Regulatory Authority (SIRA) made a major submission to the NSW Parliament’s Standing Committee on Law and Justice, assessing the health of the workers’ compensation scheme. In 2023, SIRA released a supplementary update with more recent data.

Together, these documents tell a clear story: the system is struggling — not because more people are getting injured overall, but because psychological injury is exposing structural weaknesses the scheme was never designed to handle.

This article summarises what the data shows, what has changed since 2022, and why it matters.

A growing scheme under financial strain

NSW has the largest defined-benefit workers’ compensation scheme in Australia. It now covers more than 4.7 million workers and is funded by over 350,000 employers.

Between the 2022 submission and the 2023 update:

• Premiums collected increased to around $4.9 billion

• Payments rose to approximately $4.5 billion

• Annual claims increased to around 110,000

Despite this growth, core performance indicators have not improved. Return-to-work rates remain well below historical levels, and the financial position of the scheme continues to be fragile.

The problem is not claim volume alone — it’s claim complexity, duration, and cost.

Psychological injury: small in number, big in impact

Psychological injury claims are often at the centre of public debate — but the data challenges many common assumptions.

Across both the 2022 submission and the 2023 update:

• Psychological injuries make up only about 8% of new claims

• However, they account for around 10–11% of active claims

Why the mismatch? Because psychological injury claims:

• Stay open much longer

• Have lower return-to-work rates

• Cost significantly more per claim

In other words, psychological injuries don’t flood the system — they linger in it.

Return to work: short-term stabilisation, long-term decline

One of the clearest findings in the 2023 update is a split pattern in return-to-work outcomes:

• 4- and 13-week return-to-work rates have stabilised

• 26- and 52-week rates continue to decline, particularly for psychological injury claims

This matters because the longer someone is away from work, the less likely they are to ever return — with serious consequences for health, income, and long-term wellbeing.

The update also highlights persistent under-performance in public-sector schemes, especially the Treasury Managed Fund, which covers large workforces such as health, education, and community services.

Costs are concentrating in public-facing industries

Between the 2022 and 2023 reports, costs associated with psychological injury rose sharply in three sectors:

• Public administration and safety

• Health and social assistance

• Education and training

By 2022–23:

• Public administration and safety exceeded $400 million in psychological injury claim costs

• Health and social assistance exceeded $230 million

• Education and training exceeded $150 million

These increases reflect work environments characterised by high emotional load, exposure to trauma, chronic understaffing, and sustained work pressure — conditions that worsened during and after the COVID-19 pandemic.

The claims process itself can cause harm

One of the most important — and often overlooked — findings across both reports is this:

The compensation process can actively contribute to psychological distress.

Data shows that:

• Physical injury claims that involve psychological services cost around six times more than those that don’t

• Delays, adversarial investigations, poor communication, and repeated assessments significantly worsen outcomes

• Early access to psychological support improves recovery and reduces costs

In other words, how claims are managed matters as much as the injury itself.

A system built for physical injury — facing psychological reality

The NSW workers’ compensation scheme was designed around physical injury:

• Discrete incidents

• Clear diagnoses

• Linear recovery paths

Psychological injury doesn’t behave that way.

It is shaped by:

• Workplace relationships

• Power, bullying, and organisational culture

• Trauma exposure

• The experience of the compensation system itself

SIRA’s reports increasingly acknowledge this mismatch — and argue for:

• Earlier, non-adversarial intervention

• Screening for psychosocial risk

• Value-based healthcare focused on recovery, not throughput

• Better prevention of psychosocial hazards at work

The bottom line

• The scale of the problem is now clearer

• Psychological injury remains a minority of claims but a majority of complexity

• Costs are rising fastest where work is emotionally demanding

• Long-term recovery outcomes are still deteriorating

• Without structural reform, the system will keep paying more — for worse outcomes

This is not just a budget issue or an insurance issue.It is a workplace health, justice, and dignity issue. The data suggests the question is no longer whether the system must change — but how quickly.

A call to action for leaders and HR

If you are a senior leader, executive, or HR professional, this data is not just “policy context.”It is a mirror.

The findings point to a reality many organisations are already feeling:

• Psychological harm is rising

• Claims are lasting longer

• Return-to-work outcomes are deteriorating

• Costs are increasing — human costs first, financial costs second

But the most important message is this: many of the drivers sit upstream of the compensation system. This means action cannot wait for legislative reform alone.

What leaders and HR can do now

1. Treat psychosocial risk as real work health and safety risk - Psychological injury is not a personal weakness or an individual resilience issue. It is shaped by workload, role clarity, leadership behaviour, conflict, exposure to trauma, and organisational culture. These are management responsibilities.

2. Intervene early — before claims harden - The data shows that once psychological injury claims become prolonged and adversarial, outcomes worsen for everyone. Early, supportive, non-defensive responses matter more than perfect policies.

3. Examine how your organisation responds to distress - Ask hard questions:

• Are workers believed when they raise concerns?

• Are investigations handled with care — or suspicion?

• Does the process itself escalate harm?

Often, it is not the injury but the response that breaks trust.

4. Invest in leadership capability, not just compliance - Managers are frequently undertrained and unsupported in handling psychological risk. Expecting them to manage complex human distress without skills, time, or backing is a recipe for failure.

5. See return to work as relational, not administrative - Return to work is not a checklist — it is a process of rebuilding safety, confidence, and meaning. Done well, it supports recovery. Done poorly, it retraumatises.

A final thought

The workers’ compensation system is signalling something important. It is telling us that work has changed, harm has changed, and leadership must change with it. The question is not whether organisations can afford to respond —it is whether they can afford not to.

For a confidential discussion, call us on +61 02 8114 4454

Dr Kiaos is a researcher and practitioner working at the intersection of organisational culture, change and mental health. She is the founder of Mind Culture Life Australia, supporting leaders and People and Culture teams to understand how work really gets done during change.

References

Kiaos, T.A. (2025). Organizational Culture and Faking Authenticity: How Employees Act on the Front Stage under Pressures of Normative Control. Organizational Cultures, 25(2), 41. https://doi.org/10.18848/2327-8013/CGP/v25i02/41-63