LIR examines how changing Argentinian labour laws are impacting the region?s workers? compensation market
The link between economic growth and the development of the insurance sector in Latam is by no means a complicated one; the fact that increased public and private investment, higher disposable incomes and substantial trade activity have all contributed to the development of the insurance sector in recent years is well-documented across the region.
And this is particularly true of workers? compensation coverage, according to Diego Guaita, office practice leader of the Towers Watson insurance practice in Argentina. ?Given that this kind of product is highly related to what is happening in the economy, increases in economic activity or wage inflation will, in turn, imply higher premiums, although premium rates may not vary,? he says.
In fact, with premiums set at a fixed level (that is, as a percentage of employees? salaries) in Argentina, any increase in total premium amount is likely to be the result of ?either an increase in general salary level or an increase in the number of workers included in the social security system will in turn result in an increase in total premium amounts?, Silvana Turano, employee benefits manager at Willis Argentina, explains.
The growth of the Argentinian workers? compensation market can also be largely attributed to the oftcited increasingly litigious nature of the region. ?Over the last ten years, there has been a notable increase in lawsuits concerning occupational accidents and diseases,? says Gaston Aranovich, underwriting manager at QBE Argentina.
In fact, as illustrated by the table below, postfinancial crisis, Argentina has seen a phenomenal increase in the number of lawsuits, with 2011 seeing nearly 60,000 in the country in total, compared to less than 3000 in 2003. Indeed, as Willis Argentina?s Turano points out, the system of Ley de Riesgos del Trabajo (Risks at Work) is actually ?at its highest level in terms of coverage since its inception in 1996?.
In turn, the prevalence of such levels of litigation has led the government to consider a change in the current LRT system in a bid to discourage the ?double way? or ?cumulate? via which an employee who has suffered a work-related injury can currently claim compensation from a special insurance company (ART or Aseguradoras de Riesgos del Trabajo) via the LRT system and also, simultaneously, sue his employer through civil court.
?This [double-way], which was introduced as the result of a Supreme Court ruling in 2004, opened the possibility of a much higher compensation (i.e. full damage compensation as opposed to the capped LRT compensation), given that the LRT establishes only the payment of compensation for specific and pre-established damages (in addition to full medical and related coverage), though not for moral damages or physical integrity,? says Diego S Kelly, a partner at Marval, O?Farrell & Mairal.
That said, according to Turano, the emphasis here is on ?discouragement?. ?The Argentinian government considers that it is impossible to eliminate directly by law this ?double way? because this would bring about new declarations of unconstitutionality by the Supreme Court,? she says. ?Therefore they are planning to create a special compensation for moral damage, as an addition to the compensation for accident or illness, which would be paid to the injured worker only after he/she relinquishes the right to start a demand in the civil courts.
?The figure has not yet been defined, but presumably it will be 20% above the compensation established by the LRT system,? she continues. ?If this initiative is approved, the worker will have to choose between the two alternatives: receiving this additional compensation or suing his employer.?
According to Marval, O?Farrell & Mairal?s Kelly, such reform would likely result in an increase in the costs and consequent re-adjustment of premiums as necessary for insurance companies in the region.
?However, given the current scenario, involving many interests implicated that have materially delayed the negotiations between governments, employers? associations, unions and ARTs, even if the current draft of the reform was sent to Congress in March, a hard debate is expected,? he adds.
Indeed, it seems there is much more discussion to be had before any final decision is made. ?There are still many different points of view within the administration and many different projects and ideas with regard to this law ongoing within the administration,? says Carlos Marin Rodriguez, a partner at Bullo Tassi Estebenet Lipera Torassa Abogados. ?However, most consider the current system to be a more progressive, open system and the proposed changes to be a step backwards.?
But should this reform ? a draft of which is expected to be sent to Congress next March ? come to pass, it will be only the latest in a number of changes that have taken place in the workers? compensation market in the region.
As well as the aforementioned change post-2004 which allowed employees to take legal action against the employer, in addition to the ART, in a civil court, in 2009 ? following what Gonzalo Paz Saguier, legal manager at QBE Argentina, describes as ?almost seven years of progress and setbacks due to lack of consensus among different sectors of the system? ? the Argentina government issued Degree 1694/2009 which, among other things, eliminated the limits of sums insured (previously set at AR$180,000, or around $40,000) while establishing a minimum compensation limit of the same amount. This, according to Towers Watson?s Guaita, ?led to a premium increase of 50%?.
And while this law has been in place for over two years, it has not been without its problems. ?The courts have repeatedly ruled on the unconstitutionality of several pillars of the law, opening the way for the employer?s civil liability, and in some cases, also for insurers, leading to sentences for amounts in excess of coverage,? says QBE?s Saguier. ?This has been fought by an active policy of negotiation in those cases that can be traded, and litigating hard in all those other cases that do not require it. It has also led insurers to increase the intelligence in underwriting risks.?
With the announcement of the new controversial reinsurance regulation ? which limits reinsurance operations to local reinsurers (or local subsidiaries of foreign reinsurers) ? and the implementation of new rules which has required all insurers in the region to repatriate offshore investments, Argentina, it would seem, has endured more than its fair share of regulatory uncertainty and so insurers can only hope that the changes to the workers? compensation regulations will help foster improved stability and clarity in the market.
?Today, the most significant problem in the business is the advance of litigation and the unpredictability of the judgment of the courts, both regarding the factors of attribution of responsibility and to the quantity of their sentences,? says QBE?s Saguier. ?It is expected that the new regulation ? will intensify the decline in litigation over the medium term and provide a more predictable framework for both insurers and businesses insured.
Colombia
BACKGROUND: Part of the social security system which was privatised by law 100 of 1993, known as Riesgos Professionales under Decree Law 1295 of 1994
Like Argentina, the development of the Colombian workers? compensation market is very much driven by macroeconomic factors, as explained by Lucia Perdomo, vice president of employee benefits at Willis Colombia. ?An increase in the demand for workers? compensation is reflected in a number of variables including annual GDP, which determines the growth or decline of the productivity of the country and therefore defines the percentage of salary increase,? she says.
?If annual inflation is high, wage increases will be high, and if it?s low, it leads to low wage increases. This is in accordance with how the government controls inflation which has worked on the same basis for the last three years: salaries increased in 2009 by 7.67%, by 3.6% in 2010, and by 4% in 2011 thanks to the economic recovery and anti-inflationary policies, which increase wages, creating jobs and thereby greater workers? compensation coverage.
?Unemployment also influences the population?s consumption capacity and consequently stimulates production and reactivates companies? salary incentives and linkages of new employees. That?s why WC programmes are currently being revived,? she adds. However, this is not necessarily the case for all companies in the region, argues Julio Cesar Guerrero, vice president of accident and health for ACE Colombia. ?In Colombia, the compensation schemes have increased in the companies that seek to attract, retain and motivate employees; on one hand compensation enables employers to generate aggregated values, and also motivate their staff without directly modifying their salary,? he says.
Chile
BACKGROUND:?Part of the state social security system
Social security in Chile is divided up into four areas: pensions contributions, which is approximately 10% of the employee?s salary; life & disability, which is 1.49% and is fully paid by the employer; unemployment insurance at 3%, which is paid one quarter by the employee and three quarters by the employer (for employees with undefined term contracts); primary health insurance, which covers at least 7% of salary. Meanwhile, accident and labour disease coverage is provided by mutuals and is ?fully paid by the employer and the cost of which is at least 0.9% of the salary, though the final percentage will depend on the risk of the company and also the claims history,? according to Renato Lilienfeld, partner and CEO at Lilienfeld, Corredores de Seguros in Chile.
?In addition, employers? liability can be bought through an insurance company and as part of a CGL [commercial general liability] policy,? he continues. ?This is to cover cases in which an employee or their relatives sue the employer for any accident (work related injuries) and/or labour disease, even where the cost of the accident or disease has been covered under the Chilean WC or Social Security System.?
Brazil
BACKGROUND:?Provided by the federal government
Workers? compensation in Brazil, which comes under the jurisdiction of the National Institute of Social Security (INSS) / the Ministry of Social Security (MPS), is ?represented by a percentage of total salaries paid by the employer according to the level of risk exposure (1%, 2% or 3%)?, according to L?gia Schiano Parise, divisional director of Willis Employee Benefits Brazil, who adds: ?The charge may increase or decrease according to the employer?s accident rate.?
Because workers? compensation is provided by the state, employers are not required to retain private insurance coverage, explains Leticia Ribeiro C de Figueiredo of Trench, Rossi e Watanabe ? associated with Baker & McKenzie International, Swiss Verein. ?As such, in principle, the only insurance coverage that employers in the region are required to provide to their employees is the mandatory insurance which is paid for via social security contribution,? she says. ?That said, there are other types of private insurance that companies can offer, such as those specifically for workrelated accidents, or deaths relating to such accidents; however, these are not mandatory.?
According to Walderez Tuma Fogarolli, health management director at Willis Employee Benefits Brazil, the implementation of the Technical Epidemological Nexus (NTEP) and Accident Pension Factor (FAP) in 2007 has been a key driving factor behind an increase in claims related to labour accidents in the region. ?It made it possible to characterise the relationship between accidents and diseases related to professional activity,? he says.
Mexico
BACKGROUND:A state scheme which comes under social security legislation
Workers? compensation, as such, does not exist, as the country?s social security provides a range of benefits for sickness, disability or death resulting from a work-related accident or disease. ?However, it is the case that many private companies provide private healthcare and medical assistance programmes to their employees,? says Graciela Camacho, senior vice-president of healthcare and benefits at LorantsMS in Mexico. ?In this regard, the trend in recent years has been to cut down costs and therefore the benefits provided through these programmes have decreased.
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Source: http://www.insurancelatam.com/2012/02/compensation-culture/
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