Thursday, 19 April 2012
Mental diseases threaten workers’ comp carriers claims expert
Workers’ compensation schemes run by industrial companies are increasingly challenged by the increase in mental disease, according to an expert from Munich Re. “While the number of accidents at work is declining, we observe that deficiencies due to mental disease are on the rise,” said Victor Schultheiss, Head of the centre of competence for workers’ compensation at the German reinsurance group. “Insurers and employers should monitor this development very carefully,” he added.
Workers’ compensation is a German invention. It was introduced in 1884 by chancellor Otto von Bismarck to protect employees in case of accidents at work. “From Germany, the concept of workers’ compensation has been exported to the whole world,” said Mr Schultheiss. In most countries workers’ compensation is mandatory insurance which employers have to buy for their employees.
The scope of the cover is defined by the lawmakers. Often, occupational diseases are covered as well as accidents. In about two-thirds of countries worldwide accidents on the way to and from work are also included in the scope of workers’ compensation, so-called commuting accidents.
In Germany and many other countries, the government is the risk carrier. However, there are also countries such as Norway, Denmark, Finland, Belgium, Portugal and Switzerland, where private insurers provide at least some of the cover. In Denmark for example, policies that cover accidents at work can be provided by private insurers, while the state has a monopoly for the cover of occupational diseases.
For insurers, workers’ compensation can be quite a risky and expensive business. “There are a lot of long-tail issues and often payments like medical expenditures are fully covered,” said Mr Schultheiss. “These are big risks for insurers,” he added.
This is especially true for mental disease, which can cause long absences from work. Stress at work can lead to mental problems such as depression or can also induce physical reactions such as cardiovascular problems.
Likewise, bad accidents at work, such as the accidental amputation of fingers with a chainsaw, can lead to mental disease.
Together with other trends such as ageing workforces and obesity, mental disease is a major drain on workers’ compensation schemes and makes them more expensive. “When there is an overall increase in losses, all companies may suffer premium increases,” he said. “However, a company’s individual loss statistics are also important.”
Many large European companies have already invested heavily in workers’ safety and preventive measures, and have set up their own return-to-work programmes to reduce the number of accidents and diseases. “These items are often not so prominent on the agenda of smaller companies,” said Mr Schultheiss. “They may see higher premiums if they do not improve their loss figures,” he added.
Another challenge for workers’ compensation schemes are commuting accidents involving a train crash.
In February 2012 a crash in Buenos Aires hit the headlines. At least 49 people were killed and more than 600 injured in the worst train accident in Argentina in 40 years, among them many workers. “We do not have much workers’ compensation reinsurance business in Argentina,” said Mr Schultheiss. “But the local insurers must have been hit hard by this incident since commuting accidents are covered there.”
This was not the only accident where commuter trains were involved. Two years ago a train crash at Buizingen in Belgium claimed 270 victims, leaving 18 dead. Personal injury claims amounted to about €37m. The workers’ compensation scheme has to pay up in the first place. Other events such as the 2004 terror attack in Madrid show that train accidents represent a major exposure for the insurance industry.
Commuting accidents generally have more serious consequences like permanent disablement or death than ordinary occupational accidents and therefore lead to higher costs in the form of pension payments. About 10% to 20% of all occupational accidents are commuting accidents, estimates Mr Schultheiss. About 40% result in workers being killed, he added.
The difficulty for insurers is modelling the risks. “While there are models for calculating regular occupational accidents, like the possibility of an office block collapsing, there are none for train accidents. Neither the insurer nor the employer can influence these accidents,” said Mr Schultheiss.
On 1 April the UK ushered in a new regulatory regime with two new bodies, the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA), replacing the Financial Services Authority (FSA) that was established in 1997 to replace the numerous regulatory bodies that previously supervised the country’s financial services industry.