The insurer, which manages the state's workers compensation scheme covering more than 3.2 million public and private employees, has been plagued by allegations of mismanagement, haemorrhaging money and the leaking of personal data of nearly 200,000 injured workers.
Work Health and Safety Minister Sophie Cotsis on Monday said she had directed icare to limit average premium increase to eight per cent in each of the next three financial years.
It had asked the incoming government to raise average premiums by 20 per cent, after detailing its financial troubles and plans to return to sustainability.
"Since taking office I have been advised of the parlous financial state of the workplace injury system. It is entirely unacceptable," Ms Cotsis said.
"Small businesses have been through so much hardship over the last few years. We are putting in place an immediate process of reform with the needs of both business and workers paramount.
"It will take years to fix a decade of decline in the workers compensation system, but the reform starts now."
The rise means a small business with $200,000 in wages faces an increase of about $300 per year, starting from the 2023/24 financial year.
Icare offers a 7.5 per cent premium discount incentive for employers who have a good safety record. Discounts are also available for paying annually rather than monthly.
The insurer caused a major headache for the previous Perrottet government after an upper house inquiry uncovered the insurer was in dire straits.
With its insurance ratio - a key indicator of financial health - far short of the targetted 130 per cent, icare was in financial crisis and needed to drastically raise premiums to overcome a projected shortfall, Treasury warned in a 2022 confidential briefing note.
Last year, then-finance minister Damien Tudehope raised premiums by 2.9 per cent, taking them to an average rate of 1.48 per cent of wages.
That was well below both the break-even point of 1.91 per cent and the national average of 1.7 per cent, but Mr Tudehope said businesses needed certainty in the face of natural disasters, COVID-19 and global inflationary pressures.
He also backed the icare board's process of reform that included better return-to-work rates, internal cost savings and investment management.
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