History of the Centre of Competence for Workers' Compensation

For many years, Munich Re has been covering workers' compensation insurance in a variety of markets where there is also involvement on the part of private insurers.

The decision to establish a Centre of Competence with worldwide activities in this line of insurance arose from observing that the governments of many countries are showing signs of reforming the way of insuring this risk consequently looking for new alternatives and solutions, in which private insurance companies might participate. The reasons for this are as many and as varied as can be imagined: constraints limiting the national budget, i.e. in most cases presumably the national deficit, the opening of the market as a result of liberalisation measures or, from time to time, merely the hope that the private sector will help the systems to face their current challenges for occupational accidents and diseases.

If, as a result of political discussion, one country or another is in the progress of opening its workers' compensation sector to participation of private insurance companies, then the insurers involved and we ourselves, as their reinsurer, are facing considerable challenges: to examine and provide advice on issues of prevention and rehabilitation, to set up suitable rating structures, to calculate adequate loss reserves — including IBNR and IBNER — especially in the initial years, to assess and adjust claims efficiently and appropriately, to acquire and make available effective information technology for the continual controlling of business — and these are only a few keywords from a long list.

Based on our international activity, we can provide knowledge and an exchange of experience regarding solutions to specific issues, regardless of state-run systems or systems where private participation is allowed and, help to shorten what may be expensive learning curves.

In following the path to our goal, one point seems to be particularly important; problems and approaches to possible solutions are complex, strongly marked by the specific market setting, and yet often comparable with one another. Approaches to solutions must be coordinated and weighed exclusively on the basis of their necessity in each specific case, without any kind of preference being given to methods of so-called "private" or "public" workers' compensation systems. The traditional dichotomy of typically private and typically public methods must be considered outmoded in the face of the growing challenges to be met by an efficient system for the protection and security of workers.

Since we are to a certain extent an interface for trends of this kind, it is more or less a logical consequence that we have the task of systematically compiling experience, insights and potential solutions and to share them with our existing and potential clients, with the objective of ensuring efficient operations, appropriate profitability and financial stability for all concerned. Especially in situations where national markets lack the requisite experience and expertise, the past has shown again and again that we can provide valuable service by contributing comparable experience and possible solutions.

Specialised management and support are key

The idea to establish the Centre of Competence here in Munich also sprang from the realisation that our existing workers' compensation business needed more specialised management and support: depending on the market environment, this class of business is characterized by conflicting agendas and situated somewhere between casualty and liability insurance, between private and social insurance systems and between trade unions and employers.

Although the particularly pronounced long-tail character of this business calls for a great deal of actuarial skills, this fact is all too easily forgotten when competitive pressure mounts. This mixture — in conjunction with the usually sizeable volume of business — makes for a considerable loss potential for the insurance companies involved.

Given the specific responsibilities concerned, the Centre of Competence was established in 1998 and assigned as a special unit to the CUGC division within the framework of Munich Re's restructuring as at 1 July 2001.