Struggling families and natural disaster victims are being told to brace for reduced services from charities due to skyrocketing insurance premiums to protect millions of workers.

Reforms to rein in spiralling costs in the nation's largest workers compensation scheme were voted down in parliament on Friday, five months after NSW government's first effort to pass the controversial overhaul.

The changes would have made it harder to claim for psychological injuries such as post-traumatic stress disorder, anxiety and depression in the scheme, which covers more than 3.6 million workers.

Psychological claims comprise 12 per cent of workers' compensation claims but 38 per cent of the scheme's total cost, the state government says.

Following the defeat, Premier Chris Minns declared efforts to

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