Insurers have been accused of delaying treatment for injured workers, causing snowballing deficits affecting more than 3.5 million people in Australia's largest workers compensation scheme.
Even small delays in workers returning to work are causing compounding deterioration in the NSW scheme, with the state's independent auditor agreeing it does not hold enough capital to meet payment obligations.
A parliamentary inquiry is investigating possible legislative amendments to make the embattled workers compensation scheme more sustainable.
Insurers including Allianz, GIO and EML told a hearing on Tuesday they have some responsibility for the billion-dollar deficits accrued.
The inquiry chair, Greens MP Abigail Boyd, blamed a fall in return-to-work rates on a failure of insurers to quickly make decisions and distribute payments.
Increasing rates of psychological injury and more ongoing impairment payments are the biggest driver of deficit for the scheme's nominal insurer iCare.
Accepting insurers have a part in the reliability of the state scheme, Allianz acting chief general manager Mark Pittman told the inquiry more work needs to be done to prevent delaying treatment and payment to injured workers.
But Mr Pittman argued iCare is not equipped with the expertise needed for it to run effectively.
"There's not enough psychologists in the NSW scheme," Mr Pittman said.
Worsening injuries caused by delaying treatment is estimated to cost iCare $100 million a year in extended weekly payments, Unions NSW said in a statement ahead of the hearing.
Return-to-work rates reported by insurers may also be misleading as the inquiry revealed a "successful" return for an injured employee could involve as little as one hour of work.
Falling confidence in the scheme could result in thousands of jobs moving interstate, the state's Auditor-General warned.
"You need confidence that injured workers will have funding to pay for their continuous treatment," Bola Oyetunji said.
The government has introduced amendments to curb the growth of the scheme, including raising the threshold of impairment for psychological injury, which the opposition has described as "heavy-handed".
Modelling by iCare revealed on Friday showed alternative reforms suggested by controversial inquiry member Mark Latham would leave the scheme $800 million worse off than the government's plans.
