Insurance Business | By Roxanne Libatique | Jun 29, 2026
Tighter psychological injury thresholds are here – what changes for claimants?
New South Wales has entered a new regulatory period for workers compensation, with two sets of updated guidelines taking effect on June 30 and July 1, 2026. SIRA released revised Workers Compensation Guidelines and 2026 Market Practice and Premium Guidelines on June 26 – the combined effect of which reflects two years of legislative reform driven by a scheme whose financial position has deteriorated materially. The changes carry direct implications for licensed insurers, brokers, and employers across the state. Taken together, the two instruments represent an attempt to simultaneously tighten the claims eligibility gateway and freeze the premium lever – a structural paradox that leaves the scheme’s financial recovery entirely dependent on whether the new eligibility criteria reduce psychological claim volumes as projected over the next two years.
The market context: a scheme under documented financial pressure
The timing of these changes reflects a workers compensation scheme that has been under sustained financial pressure. In a March 2025 ministerial statement to NSW Parliament, Treasurer Daniel Mookhey quantified the problem: psychological claims now make up 12% of total workers compensation claims but 38% of the total cost, and the average cost of a psychological injury claim has increased from $146,000 in 2019-20 to $288,542 in 2024-25. He further confirmed that for every $1 needed to care for injured workers, the state’s main workers compensation scheme currently holds only 85 cents in assets.
Part of what drives the cost disparity between psychological and physical claims is duration. Just 50% of workers with psychological claims are back at work within a year, against a 95% rate for physical injuries. That gap – combined with icare paying over $5 billion in workers compensation claims benefits in the 2024 financial year – is reflected in icare’s own annual report, which acknowledged that a continued rise in psychological claims, and an increase in claims exceeding Whole Person Impairment thresholds, is driving a significant increase in claims costs and impacting long-term financial sustainability. Without legislative intervention, the NSW government projected premiums would rise 36% over three years to 2028, representing a $1 billion per year insurance premium increase.
Updated workers compensation guidelines: a new psychological injury gateway
The revised Workers Compensation Guidelines, which take effect from July 1, 2026, and replace the version dated March 1, 2021, introduce the most consequential structural change to psychological injury claims handling the scheme has seen. The new framework makes compensability conditional on three cumulative tests: the injury must stem from a relevant event or series of relevant events, there must be a real and direct connection between those events and the worker’s employment, and employment must be the main contributing factor to the injury. A distinct sub-category – the “relevant injury” – applies where the cause is relevant conduct, defined as bullying, sexual harassment, racial harassment, or excessive work demands. Claims in this category sit outside several core guideline provisions, including initial injury notification and provisional liability, and are instead governed by Part 8A, Division 2 of the Workers Compensation Regulation 2016.
The commercial significance of that gateway goes beyond definitional change. icare has projected that, without reform, an additional 80,000 people would make psychological injury claims over the next five years. The new eligibility criteria represent the primary mechanism for deflecting that trajectory. Actuaries and underwriters pricing NSW employer liability books now have a quantified benchmark – 80,000 projected claims over five years under the pre-reform settings – against which actual volumes over the coming policy year can be measured.
A second tranche of reforms, passed in February 2026, includes phased increases to Whole Person Impairment thresholds for psychological injury and a legislated restriction on average premium increases for the Nominal Insurer. Further guideline amendments are expected as those measures take effect. On provisional liability, the seven-calendar-day window for insurers to commence payments, issue a documented reasonable excuse, or determine liability remains unchanged from prior practice. What has changed is the threshold a claim must clear before that process begins. Provisional liability for medical expenses can be accepted up to $10,000 before a formal determination is required.