Overview of workers' compensation insurance

Workers' compensation in the context of general reform tendencies in social security systems.

The idea of compulsory insurance against basic risks such as old age, invalidity, occupational accidents, occupational diseases and sickness dates back to the 19th century. It was seen as a fundamental community interest to organize, in advance and on a compulsory basis, financial aid for those who were no longer able to work, but had no savings to compensate for the loss of earnings.

The original, extremely limited social security systems have gradually been transformed, especially in the last few decades. The general tendency of the reforms was towards perfecting individual protection and thus towards extending coverage and benefits. As a consequence, related expenses have considerably increased.

Nowadays, in the context of strong competition on an international scale, the reduction of additional workforce costs is seen as an urgent necessity. The main goal of the reforms is to enhance the efficiency of the social protection systems. One possible solution which has been discussed is the introduction of elements of competition in monopolised state-run systems.

An even more radical approach is to transfer completely the organization of the protection system in certain sectors to private insurance companies acting within a clearly defined legal framework. Thus, the role of the state would be reduced to one of control and supervision.

Insurance against occupational accidents and diseases is one example where a number of countries in various parts of the world have decided to allow private participation in the systems. Some systems allowed private participation only recently (e. g. Norway, Colombia), some are still mired in the process of analysing the possibility to reform (e. g. Eastern Europe) and some have a long tradition of private management (e. g. Portugal, Belgium).

The systems of the United States are difficult to integrate into this comparison. As there are very few federal regulations, the different states are free to develop their own systems, which mirror to a large extent different traditions and convictions. The models range from very liberal to strongly regulated state-run systems. But, generally speaking, insurance companies in the USA have the longest and most in-depth experience in handling workers' compensation claims in a market with private participation.

The Australian system is, likewise, far from uniform. In some areas, workers' compensation is managed by private insurance carriers, in others by central funds. New Zealand is a very special case: the system allowed private participation in July 1999. After the elections in November 1999, the new government decided to re-nationalise this class of insurance.

The difficulties in adapting the traditional systems to new challenges show the heavy influence of such factors as political agendas, the legal climate and labour/union issues.