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Major changes are afoot in Latin American workers compensation systems.
For the past three decades, workers compensation benefits in most countries have been administered by government monopolies within the social security system.
But as Latin American governments limit their dominant roles in the economy and reform their underfinanced and highly indebted social security systems, workers comp is developing as a thriving private sector business.
The role model for this reform is Chile, which founded its current workers comp system 30 years ago. It began voluntarily among employers and industry sector organizations concerned about the mounting costs of workplace accidents.
Chile created a group of mutual insurers with three areas of responsibility: loss prevention, medical attention and disability payments. Today, there are 13 privately administered mutuals, but just three of these dominate the market: Mutualidad de Seguros; Instituto de Seguros del Trabajador; and Asociacion Chilena de Seguridad, or ACHS, which was created as part of the Construction Chamber, Camara de Construccion.
The mutuals cover 2.8 million people, or 75% of the working population, said Eduardo Undurraga, general manager of Santiago-based ACHS. The remainder of the population is covered through Instituto de Normalisation Previsional, the clearinghouse for the old state social security system after Chile privatized its social security system in the 1980s.
Mr. Undurraga claims that the mutuals' greatest achievement has been loss prevention. Nearly 30 years ago, in 1969, Chile's rate of workplace accidents was 35.3 per 100 workers, while today the accident rate has fallen to 9.5%.
"The system has worked well and lowered overall costs," said Joseph Hamilton, senior vp of Liberty Mutual Insurance Co. in Boston.
Employers pay 100% of workers comp premiums, which are determined by law.
There is a base premium of 0.95% of payroll, and an additional premium of up to 6.8% may be assessed, depending on the level of work hazard and the loss record of the employer.
According to Jonathan Calland, general manager of the Santiago-based employee benefits consultant Calland y Cia., Chilean employers pay an average of 1% of payroll for workers comp premiums. But ACHS' Mr. Undurraga said the average is about 1.9% of payroll.
However, Liberty Mutual's Mr. Hamilton said this mandated premium is a drawback to the system. "It's an over-rigid system. The lowest you pay is the minimum rate for an industry group. There is a recognized subsidy between groups" for higher-risk members of the mutual system, Mr. Hamilton said.
Every employer is required to subscribe to a workers comp mutual. Only organizations with more than 2,000 employees may self-insure. About 45,000 Chilean workers in nine companies are covered under a self-insurance plan, of which five are a division of the state-owned copper company Corporacion Nacional del Cobre del Chile, which has about 35,000 employees.
"Self-insurance is an option, but it is limited because the state has the power to tax the premiums," said Mr. Calland. The company can hold on to only one-third of the premiums it generates; the remainder goes in tax. "The state does not encourage employers to go it alone," Mr. Calland said.
Messrs. Calland and Undurraga said there is little call to demutualize.
"It's a non-issue," said Mr. Calland. "In Colombia, the system is for profit; in Argentina the system is for profit. Here, we have had a mutual system since 1968, and it functions well," said Mr. Undurraga. New entrants into the Chilean workers comp market will find the going tough, he said.
Chile was a model for the reform of the Colombian system in 1993.
That year, the Colombian government passed a comprehensive reform of pension, health care and workers comp.
Until then, those areas had been administered as a government monopoly. Health care was reorganized into Entidades Provedores de Salud, a kind of health maintenance organization; private pension funds were created, called Aseguradoras Fondos de Pensiones; and coverage for workers comp came under the purview of Aseguradoras de Riesgos Profesionales. The state social security system, Instituto de Seguridad Social, was reorganized along the same lines. This reform was controversial at the time.
"There was concern within the state system of losing income and power," said Mr. Hamilton.
He noted that there is a similar controversy in Mexico over the state social security provider, IMPS.
"That is the country's largest employer, with 450,000 employees and with the largest union," he said of IMPS.
In Colombia, there are 15 private-sector ARPs, and the ISS remains a state provider. As in Chile, employers pay 100% of the premiums, which average about 1% of payroll, said Mauricio Parra, general manager at Bogota, Colombia-based Aon Previsionales y Personas Ltda., a subsidiary of Aon Corp.
A government-mandated matrix determines workers comp premiums. The matrix organizes businesses into five industry categories, based on workplace hazards. Within each category, there are then three rating levels: a base rate, a minimum rate and a maximum rate.
Thus, an employer has an incentive to improve loss control and pay a smaller premium, to either move to a lower rate or even a lower-risk category, Mr. Parra said.
Colombian employers have criticized this minimum rate system as too rigid, Mr. Parra said. Employers are seeking to make the market more competitive, but this may be premature, he said. Mr. Parra said he believes that freeing up the market now could cut premiums from 1% to 0.1% and cause many bankruptcies among ARPs.
According to Mr. Parra, the 15 private-sector ARPs have 37% of the work force and the ISS has 63%. But the private sector earned 47% of total workers comp premiums in Colombia, while the state sector earned 53%, implying that higher-paid workers are affiliated with the private-sector system. Total workers comp premiums collected were 10 billion Colombian pesos ($10 million) in 1995, 80 billion pesos ($80 million) in 1996, and 145 billion pesos ($145 million) last year.
"There has been a remarkably good experience to date," said Mr. Hamilton.
But this market is showing the same oligopolistic trends as in Chile, where a small number of companies virtually control the market. Two companies control 52% of the ARP market in Colombia. One is Colmena, a subsidiary of Fundacion Social, a Bogota-based holding company that groups the business interests of the Jesuit order. The other is Surapet, a subsidiary of the country's largest insurer, Suramericana de Seguros.
Each of Colmena and Surapet holds 26% of the market. Colpatria, part of the Pacheco family groups, holds 11%, and Colseguros, part of the Santodomingo group, holds 10%. Thus, four companies control nearly three-quarters of the market.
As in Chile, the Colombian system pays indemnities regardless of the liability of the employer.
"But if the employer is considered liable for the accident, then you, as an employee, can sue him. This has nothing to do with the ARP," said Mr. Parra.
As in Chile, self-insurance is an option open only to the largest Colombian companies. The country's largest employer is the state oil company Empresa Colombiana de Petroleos. The company has been self-insured since its creation in 1948. It owns one clinic for its employees in Barrancabermeja, a city where one of its refineries is located. All contributions for pensions, health care and other benefits are paid by the company. Ecopetrol employees pay no contributions to their benefits package. The company will also pay the medical costs of employees' close relatives, such as spouses, children and, occasionally, parents. These benefits are arranged under an agreement with the company's labor union, explained Luis Cardenas, insurance manager at Ecopetrol.
Ecopetrol may explore purchasing workers comp insurance in the future, he said.
Venezuela is set to be the next Latin American country to reform its social security system. President Rafael Caldera is expected to sign into law a social security reform bill by November, in advance of December elections.
The measure would partly privatize the state social security system and take workers comp coverage out of the government's monopoly.
The new system is expected to resemble Colombia's system, said Terence Gilbert, general manager at Caracas-based Johnson & Higgins de Venezuela. At present, the Venezuelan government provides all workers comp, with the exception of employees of the state oil company, Petroleos de Venezuela S.A.
Social security started in Venezuela in the 1960s, Mr. Hamilton explained.
But employers in outlying rural areas that lacked state facilities had the option of buying private insurance. In addition, strong unions in a highly politicized industry such as oil could demand and get better benefits. Therefore, PDVSA buys workers comp coverage in the private market. Contractors to PDVSA, as well as some larger private employers, also buy workers comp in the market, Mr. Hamilton said.
Under the proposal awaiting the president's signature, both employer and employee would be required to contribute to the new Venezuelan system. The employer would contribute up to 6.6% of payroll, while the employee would contribute up to 2.6%. The rates would be set on a scale that varies depending on industry hazards. Total rates for office workers would vary between 0.75% and 1.5% of payroll, while oilfield workers would pay up to 7% of payroll.
Reform of the workers comp system in Brazil is at least two years away, said Ron Gabay, an employee benefits consultant at Aon Brasil Corretores de Seguros in Sao Paulo. The system was privately run until 1968, when the government took it over as part of an expansion of state power and made it part of the state social security system. Brazilian employers pay 22% to 24% of payroll for their social security contributions, which provide benefits in public health, workers comp and pensions. The system has a deficit of $8 billion, or 2% of the Brazilian GDP. "It's a big black hole," said Mr. Gabay.
Brazilian employers face a potential surge in costs as a result of the country's first attempt to regulate private health plans, said Humberto Torloni, a consultant at Aon Consultants in Sao Paulo.
In the past, Brazil's HMOs generally excluded sophisticated medical procedures. But the new law obliges them to cover conditions such as AIDS and procedures such as transplants. There are also tighter regulations governing the minimum financial reserves that HMOs must maintain.
Thus HMOs, which offered limited coverage, will incur greater costs in adjusting their coverage to meet the new requirements. This expense will be reflected in increases in health insurance for the consumer, said Mr. Torloni. "The costs are going to shoot right up," he said.
Argentina's 1996 workers compensation reform has not met its goal of stimulating employer investment in programs to reduce the risk of workplace accidents.
The Argentine government introduced a U.S.-style private workers comp system in 1996, with responsibility for coverage shifting to employers or individual workers from the state.
At the time, the stated goal of the change was to reduce civil litigation under the old system and encourage employers to adopt safety and loss prevention programs (BI, June 10, 1996).
According to a report published by the superintendent of the Argentine workers comp system, or SRT, each month, there are more than 25,000 accidents at work in Argentina.
The SRT puts the blame for continued high accident rates on employers' failure to invest in loss prevention. The government contends that 97% of Argentine businesses fail to meet required workplace safety and hygiene standards. The government also claims that most Argentine companies do not fully train staff in safety procedures, when such procedures exist.
A recent study carried out by the SRT found that 24.2% of companies questioned do not comply with basic safety regulations, 67.2% partially comply with safety regulations, and only 8.6% fully comply with current safety regulations.
In response to nationwide unrest and regular civil protest against unsafe working conditions, the Argentine government recently proposed raising the ceiling on payments for insurance covering total disability and death at work. The payment amount would be doubled, to 110,000 pesos ($110,000) from 55,000 pesos ($55,000). The proposal is part of several pieces of legislation that would reform the workers comp law.
Rupert Eden contributed to this report.