Are there other options out there?

Against the backdrop of increasing unreliability of government services, thought should be given to finding alternative arrangements to those provided by government. Are there other potential options to state provided workers’ compensation?

As things stand, regular reports are suggesting that the Compensation Fund – a state entity responsible for insuring employees injured at work – is no longer as efficient as it used to be in providing this service. Reports of delays in the processing of claims are common. An even bigger problem facing the Fund is that the erosion of the benefits it pays is making it less competitive.

Introducing an alternative system is something that should enter the public policy discourse sooner rather than later. As it turns out, introducing a new system is relatively simple to achieve and, furthermore, it would return workers’ compensation to its roots.

Option for non-government workers’ compensation insurers

A private sector workers’ compensation option (in addition to the government option) could easily be introduced because the benefits of workers’ compensation are set out in legislation, namely the Compensation for Occupational Injuries and Diseases Act (COIDA) of 1993. All that is needed, therefore, is for private insurers to issue a workers’ compensation policy stating that the policy benefits are those prescribed by the relevant statute. The state-provided option can still co-exist with these private insurers. Employers can then choose which one they prefer; competition will be good for efficiency.

To facilitate the introduction and development of additional private sector workers’ compensation insurance offerings, it is advisable to amend COIDA. This Act, as it is currently drafted, is rather convoluted; it can and should be simplified. If the Eskom and SAA saga has taught us anything, it is that we should be making it easier for private individuals to provide what are currently state-provided services.

The relevant sections of COIDA 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 recognised the historical evolution of workers’ compensation, which started off with the mines paying compensation. To do that, they established Rand Mutual and hence, when the state became involved, provision had to be made for the Rand Mutual Scheme. This is where the notion of “employer individually liable” came from. The employer became liable to pay the workers’ compensation that was due to the injured employee, with the funds coming from Rand Mutual. 

Most mutual insurers have long since ceased to exist and there is no reason to insist that insurance coverage be provided by a mutual insurer. It is also not clear why the mutual association is included in section 29. The employer individually liable could be compelled to purchase insurance cover. Therefore, the two options would be the employer individually liable or the state fund.

Section 30 deals with the mutual insurers (or associations, as referred to in the Act). This section should be amended to remove any reference to mutual insurers. It could be any registered insurer licensed to provide workers’ compensation cover. In that case, it becomes unnecessary to deal any further with the insurer, since all insurers are regulated in terms of the Insurance Act.

Apart from Rand Mutual, the construction industry decided that it also needed to have an insurer and so, in 1937, the Federated Employers Mutual Assurance Company (FEM) was formed. When a new Workers’ Compensation Act was passed in 1941, the FEM was granted a licence to continue to transact workers’ compensation cover for the construction industry.

Thus, the ability of other insurers to enter the workers’ compensation market should be facilitated by changing the legislation to make this possible. After all, the two mutual insurers (Rand Mutual and FEM) are already offering an alternative to the state scheme. There is no logical reason, then, to bar the expansion of this option to other employers.

Workers’ compensation returning to its roots

The workers’ compensation system would return to its roots if the legislation were changed. Originally, workers’ compensation was not designed to be state-provided cover, but rather private cover. If the suggested change is made, consideration should also be given to allowing the market to provide improved forms of cover, unlike the current situation where the government scheme offers no scope for innovation.

During the closing decades of the 1800s, the insurance market expanded to include a new class of insurance: accident insurance. The earliest class was marine, followed by life and fire insurance. Fire, as the name implies, was a specific peril type of cover. Gradually the market expanded to add additional perils, until cover became all perils policies in the modern age.

The accident insurance market appeared as the rise in mass transportation made accidents an increasing reality for more people. The market also included workers’ compensation, with personal accident policy emerging from these developments – thus, the workers’ compensation policy could just as easily be regarded as a personal accident policy.

Occupational diseases: A twist in the tale

A twist in this tale was the recognition of occupational diseases. Accidents and diseases are two different work-related risks and, as the well-known English judge Lord McNaughten once said: “What constitutes an accident cannot be defined, but is an event which occurs at a point of time at a specific location.” Clearly, diseases do not fall within this category, since in most cases it is not possible to pinpoint the time and location a disease is contracted. This is because most work-related diseases have a latency period.

In South Africa the problem of diseases came to the fore with silicosis in the mining industry. Many of the early miners in South Africa came from Cornwall in the UK. When the Anglo-Boer War broke out, mining operations were suspended and these miners went home.

When it was proposed that mining operations be resumed after the war, it was discovered that many of the miners had not returned; further investigations revealed that many of them had, in fact, died. This caused quite a stir in the UK and South Africa, drawing considerable attention to occupational diseases, and a separate fund was established to deal with occupational diseases in the mines.

Occupational diseases are also dealt with in terms of the workers’ compensation legislation. In the 1980s, a commission of inquiry recommended diseases be dealt with under one consolidated piece of legislation instead of the existing two, namely: COIDA and the Occupational Diseases in Mines and Works Act of 1973. That recommendation was never implemented, but now would be a good time to consolidate these two pieces of legislation.

Learning from international trends

When workers’ compensation was introduced in England, it was covered by the private market; there was no state fund. However, Germany, which was the first country to introduce workers’ compensation, had a state fund. Since then, the clear and overwhelming trend worldwide is to have some private sector involvement in the workers’ compensation arena.

In several countries occupational accidents are insured by the private sector, while occupational diseases are covered by a state fund. These countries have correctly realised that occupational diseases pose important insurability challenges, hence the decision to cover them through a state fund.

Given the widespread failure or underperformance of many state institutions in South Africa, government should be proactive in so far as workers’ compensation is concerned. Already, there are clear signs of problems with the Compensation Fund. Now is the time to facilitate additional insurers to provide workers’ compensation coverage, and it seems appropriate to simultaneously reconsider how to deal with occupational diseases.