From October, the State Insurance Regulatory Authority (SIRA) requires that claims for medical or related treatment, hospital treatment, ambulance services, and workplace rehabilitation services satisfy a “reasonable and necessary” standard before insurers approve payment.
That replaces the previous “reasonably necessary” threshold – and the distinction matters more than the word order suggests.
Under the old test, insurers asked one question: is this treatment reasonably necessary? Under the new standard, two separate assessments are required. Global law firm Herbert Smith Freehills Kramer, in a July 2026 analysis of the NSW reforms, confirmed the change moves the test “from ‘reasonably necessary’ to ‘reasonable and necessary’” – a shift it described as raising the “higher threshold” for compensable treatment.
In practice, a physiotherapy program could be clinically defensible but not strictly required at that stage of recovery. Under the new rules, that distinction counts. Treatment that clears one bar may not clear both.
The Law Society of NSW has gone on record in opposition. In a letter to SIRA dated May 15, 2026, the Law Society said the new rules “qualify and arguably narrow the definition of ‘reasonable and necessary’” and stated it was unable to support this change. The submission also flagged that the rules may cause treatment delays, exacerbate symptoms, and increase disputes before the Personal Injury Commission – particularly given insurers have only 21 days to make a decision.
That dispute – between cost containment and treatment access – is now live and will show up in claims. Brokers with employer clients who are closely tracking claims costs should understand that some treatment that would previously have been approved may now face scrutiny or rejection.
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The October changes arrive after three consecutive years of average 8% premium increases, confirmed by icare for the 2025-26 period. SIRA’s 2024-25 annual report shows the average Nominal Insurer premium as a percentage of wages rose from 1.6% in 2023-24 to 1.84% in 2024-25.
Psychological injury claims have been the primary cost driver. SIRA’s annual report recorded an 87% rise in those claims between 2021-22 and 2024-25, from 7,289 to 13,648. In a March 2025 ministerial statement, NSW Treasurer Daniel Mookhey told Parliament that psychological claims account for 12% of total claims but 38% of total scheme cost, with the average cost of a psychological injury claim rising from $146,000 in 2019-20 to $288,542 in 2024-25.
Business NSW backed the reforms strongly after passage of the enabling legislation in February 2026. CEO Daniel Hunter said the changes were “an important first step in repairing a scheme which has too often failed both business owners and genuinely injured workers,” noting the organisation had warned that without reform, one in five member businesses would potentially face closure under projected premium trajectories.
The second October change expands eligibility for commutation – where a worker and insurer agree to settle ongoing compensation liability through a voluntary lump sum.
Workers with injuries sustained before January 1, 2023, may now be eligible. Agreements must be finalised within 24 months of commencement and take effect only once approved by the President of the Personal Injury Commission (PIC), which has published Procedural Direction WC8 outlining the application process.
Claimants are required to obtain independent financial and legal advice before proceeding. The Independent Review Office (IRO) assists eligible injured workers in accessing legal advice, while financial advice costs are covered by insurers.
SIRA processed 106 commutation applications under the prior framework in 2024-25. With eligibility now broadened, that volume is likely to shift.
For brokers with clients carrying older long-tail exposures – particularly psychological injury claims where a significant proportion of claimants have not returned to work after two years – the widened commutation pathway is worth raising proactively in renewal conversations.
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Both changes form part of the broader reform program enacted through the Workers Compensation Legislation Amendment Act 2025 and the Workers Compensation Legislation Amendment (Reform and Modernisation) Act 2026. The updated Workers Compensation Guidelines were gazetted on September 25, 2026.
The 2026-27 premium year carries a legislated freeze on industry classification rates, though final premiums can still move based on declared wages, claims experience, and eligibility for discounts including the Safe Employer Reward.
The renewal conversation now has two clear parts: help employer clients understand the treatment approval bar has risen and that borderline claims are more likely to be contested; and separately, identify whether any existing long-tail liabilities – particularly older psychological injury claims – are now candidates for commutation under the expanded eligibility rules.
Revised guidelines covering the approval of treating allied health practitioners and hearing service providers are also now in effect through the SIRA resources library.
