Time for alternative workers’ compensation options

Robert Vivian is Professor of Finance & Insurance, School of Business Sciences, Wits University, and also a member of the Free Market Foundation’s Rule of Law Board of Advisors.   


Dr Mushai is a senior lecturer and head of the school’s insurance division. They write in their personal capacities.  

For interviews: 

The views expressed in the article are the authors' and not necessarily shared by the members of the Foundation.

This article may be republished without prior consent but with acknowledgement to the authors.

The FMF is an independent, non-profit, public benefit organisation, created in 1975 by pro-free market business and civil society national bodies to work for
a non-racial, free and prosperous South Africa.
As a policy organisation it promotes sound economic policies and the principles
of good law. As a think tank it seeks and puts forward solutions to some of the country's most pressing problems: unemployment, poverty, growth, education, health care, electricity supply, and more. The FMF was instrumental in the post-apartheid negotiations and directly influenced the Constitutional Commission to include the property
rights clause: a critical cornerstone of economic freedom.

+27 11 884 0270 
PO Box 4056, Cramerview 2060

This article was first published by Business Day on 26 April 2023

Time for alternative workers’ compensation options

As a result of the collapse of almost every government service and state owned enterprise, South Africans are perforce increasingly seeking ways to avoid or replace government services.
State insurers have also failed.  The Road Accident Fund (RAF) became insolvent, hopelessly so, decades ago, and the SA Special Risks Insurance Association (SASRIA) has also 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 government provided services.
An alternative to the state provided workers’ compensation fund is urgently required. Reports suggest that the Compensation Fund, a state entity responsible for insuring workers injured at work, is no longer operating efficiently. Lengthy delays in processing of claims are commonplace, and the erosion of the benefits it pays make it less and 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:
Option for non-government worker’s compensation insurers
It is easy to introduce a private sector workers’ compensation option in addition to the state-provided option because the benefits of workers compensation are set out in the relevant legislation: The Compensation for Occupational Injuries and Diseases Act of 1993 (COIDA). 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 co-exist 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 COIDA is required.
The relevant sections are ss29 and 30.  In terms of s29, 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 South Africa with the mines paying compensation to injured employees. To do that they established the Rand Mutual Insurance company.  Later when the state became involved, it made provision for the Rand Mutual.  That is where the employer individual liable came from.  The employer became liable to pay compensation to the injured employee.  The employer then insured this risk with the Rand Mutual.  Most “mutual” insurers have long since ceased to exist and there is no longer any reason to insist that COIDA insurance cover be provided by a mutual insurer.  It is also not clear why reference to the mutual association is included in s29 of the Act.  The employers, individually liable, would be compelled to purchase insurance cover.  Therefore, the two options are effectively the employer individually liable, or the state COIDA fund.  It is also not necessary to refer to the Director General.
S30 must be amended to permit any registered insurer licenced to provide workers’ compensation insurance to offer cover.  It then becomes unnecessary to deal any further in the COIDA Act with the insurer, since all SA insurers are regulated in terms of the Insurance Act.
Originally there was only the Rand Mutual for the mining industry.  Then came the state fund.  However, 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.
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 the Rand Mutual and the Federated Employers’ Mutual, are already offering an alternative option to the state scheme. There is no logical reason to bar the expansion of by allowing other insurers.
Returning Worker’s compensation to its roots
Germany was the first country to introduce workers compensation legislation. In England workers’ compensation was covered by the private insurance market.  As in South Africa 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. 
Change to the legislation as proposed will return the workers’ compensation system to its roots, originally designed for cover to be privately provided. 
During the closing decades of the 1800s the insurance market expanded to include a new class of insurance, being 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 today as a personal accident policy. 
Consolidation with Occupational Diseases
Accidents and diseases are two different work-related risks but diseases have a long 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 Cornwell in the UK.  After the Anglo-Boer war, when it was proposed that mining operations be resumed, it was discovered that many miners had died of illnesses in the interim.  This caused quite a stir in the UK and SA and thus separate fund was established to deal with occupational diseases in the mines.  In the 1980s a commission of inquiry recommended diseases should be dealt with under one consolidated piece of legislation instead of the current two, namely COIDA and the Occupational Diseases in Mines and Works Act of 1973.  That recommendation was never implemented.  Now would be a good time to consolidate these two pieces of legislation.
Given widespread failure or underperformance of state institutions, before it is too late, now is the time to facilitate the entry of additional insurers to secure this important market.


Help FMF promote the rule of law, personal liberty, and economic freedom become an individual member / donor HERE ... become a corporate member / donor HERE