It is time to change the decades-old worker compensation regime in SA

Alternatives are needed as the state entity responsible for insurance against work injury is grossly inefficient

Due to the collapse of almost every government service and state-owned enterprise, South Africans perforce are seeking ways to avoid or replace government services. State insurers have also failed. The Road Accident Fund (RAF) became hopelessly insolvent decades ago, and the SA Special Risks Insurance Association (Sasria) has required billions in government support. If the Eskom, SAA, RAF and Sasria sagas have taught us anything, it should be to make it easier for individuals to provide such services for themselves using alternatives to those provided by the government.

An alternative to the state-provided workers’ compensation fund is urgently required too. Media reports suggest the Compensation Fund, a state entity responsible for insuring workers against injury at work, is no longer operating efficiently. Long delays in processing claims are common, and the erosion of the benefits it pays makes it less competitive with what might be available in a competitive market. Introducing an alternative system is simple to achieve and would return workers’ compensation insurance to its roots.

It is easy to introduce a private sector workers’ compensation option in addition to the stateprovided one because the benefits of workers’ compensation are set out in the relevant legislation: the Compensation for Occupational Injuries & Diseases Act of 1993. Therefore, all that is needed is for private insurers to issue a policy that states that the policy benefits are those prescribed by the relevant statute, or better. The state-provided option can readily coexist with private market arrangements. Employers can then choose which one they prefer. Competition will naturally improve claims efficiency, premium costs and permit benefit innovation.

To facilitate this, only a small amendment to the act is required. The relevant sections are 29 and 30. In terms of section 29 compensation is payable by “the director-general or the employer individually liable, or the mutual association concerned”. This strange wording recognises the historical evolution of workers’ compensation. It started off in SA with the mines paying compensation to injured employees.

PURCHASE COVER

To do that they established the Rand Mutual Insurance company. Later, when the state became involved, it made provision for Rand Mutual, which is where the “employer individually liable” came from. The employer became liable to pay compensation to the injured employee and insured this risk with Rand Mutual. Most “mutual” insurers have long since ceased to exist and there is no longer any reason to insist insurance cover under the act be provided by a mutual insurer.

It is also unclear why reference to the mutual association is included in section 29. Employers, individually liable, would be compelled to purchase insurance cover. Therefore, the two options are effectively the employer individually liable or the state fund under the act. It is also unnecessary to refer to the director-general.

Section 30 must be amended to permit any registered insurer licensed to provide workers’ compensation insurance to offer cover. It then becomes unnecessary to deal any further in the act with the insurer, since all SA insurers are regulated in terms of the Insurance Act.

Originally there was only Rand Mutual for the mining industry. Then came the state fund. In 1937, the construction industry set up the Federated Employers Mutual Assurance Company (FEM). When a new Workers’ Compensation Act was passed in 1941, the FEM was granted a licence to continue to offer such insurance.

OVERWHELMING TREND

The ability of other insurers to enter the workers’ compensation market must now be facilitated by changing the legislation appropriately. After all, the two insurers referred to, namely Rand Mutual and the Federated Employers’ Mutual, are already offering an alternative option to the state scheme. There is no logical reason to bar other insurers.

Germany was the first country to introduce workers’ compensation legislation. In England workers’ compensation was covered by the private insurance market. As in SA, there was no state fund. The clear and overwhelming trend worldwide is to have at least some private sector involvement in workers’ compensation. This serves to make the sector efficient, cost-effective and innovative. The current situation is that the government scheme has produced little innovation since 1941.

Changing the legislation as proposed will return the workers’ compensation system to its roots, originally designed for cover to be provided privately. During the closing decades of the 1800s, the insurance market expanded to include a new class of insurance: accident insurance. The accident market included workers’ compensation. Personal accident policies emerged from these developments. A workers’ compensation policy could just as easily be regarded now as a personal accident policy.

Accidents and diseases are two different work-related risks, but diseases have a long latency period. In SA the problem of diseases came to the fore with silicosis in the mining industry. Many of the very early mineworkers in SA came from Cornwall, UK. After the Anglo-Boer War, when it was proposed that mining operations be resumed, it was discovered that many mineworkers had died of illnesses in the interim. This caused quite a stir in the UK and SA, and a separate fund was established to deal with occupational diseases in the mines.

In the 1980s, a commission of inquiry recommended that diseases be dealt with under one consolidated piece of legislation instead of the current two, namely the Compensation for Occupational Injuries & Diseases Act and the Occupational Diseases in Mines & Works Act of 1973. That recommendation was not implemented. Now would be a good time to consolidate these two pieces of legislation.

Given the widespread failure or underperformance of state institutions, it is time to facilitate the entry of additional insurers to secure this important market before it is too late.

Vivian is professor of finance & insurance at the Wits University School of Business Sciences and a member of the Free Market Foundation’s rule of law board of advisers. Dr Mushai is a senior lecturer and head of the school’s insurance division. They write in their personal capacities.