How are things with workers’ compensation?

A new year has begun, and we are all hoping that it will be better than the one that just ended. Maybe after a few years we will be able to see the bigger picture and the long-term impact of 2020.

A long-term approach is also needed when we assess the functionality of our statutory accident insurance system. This applies to the effectiveness of legislation in the face of changes in working life as well as with regard to insurance capacity. Insurance capacity assessment has been facilitated for years by the Statistical survey of workers’ compensation insurance, which is carried out by the Financial Supervisory Authority under Finnish law. The most recent survey that covered the period 2015–2019 was published just before Christmas, so the year 2020 was not included in it.

What do the survey findings tell us about the state of the statutory accident insurance system?

Premiums grew and the market was concentrated

Firstly, the survey shows that the amount of premiums written grew throughout the sector in 2018 and 2019. Premiums written usually start to grow shortly after salaries are increased. This is also shown in the survey statistics. The corresponding figures for 2020 will be interesting, to say the least.

The market remains highly concentrated. The largest four companies account for more than 90% of premiums written. Apart from a few exceptions, the insurance companies providing workers’ compensation insurance are Finnish; If is a Swedish company that belongs to the Sampo Group, whereas Protector is a listed company from Norway. From the perspective of workers’ compensation insurance provision, the company domicile does not matter. All the companies operating in the insurance sector are governed by the same laws and have the same obligations towards policyholders and beneficiaries.

The market has long been seeing an ever-increasing number of employers changing to insurance plans based on special-rate premiums. With special-rate premiums, claims history directly affects the size of the employer’s insurance contributions. This acts as an incentive to improve safety at work, which is a good thing. On the other hand, the change in the size of insurance contributions may come as a surprise to the employer, even if the issue had been discussed when the insurance was taken out.

Investment income balances the loss from insurance provision

What about the result? What do we see on the bottom line? Workers’ compensation insurance is a hybrid of social security provision and the business operations of private insurance companies. Its primary purpose, however, is the provision of social insurance. Insurance companies are allowed to make a profit from it within reason – reasonable being the operative word. The statistical survey of the Financial Supervisory Authority plays a key role in verifying this, and also provides a different perspective – does the result provide security for insured interests and the system’s carrying capacity?

If the sole criterion is covering the compensations paid and the operating costs with the insurance premiums collected, then the answer is no. During the five-year reference period, the underwriting result was positive only once, in 2018; and negative in the other four years of the reference period.

It was the investment income that made the business profitable on average during the reference period. Workers’ compensation insurance is a type of insurance that is very much based on reserves. Unlike with earnings-related pension insurance, for example, almost all future obligations – apart from the index increases of pensions filed – are balance sheet reserves set up by the insurance companies with the assumption that a return on investment will be made on the reserved funds. Any future claims paid are therefore discounted at their present value.

Loss reserves around EUR 4 billion

The workers’ compensation insurance loss reserves currently stand at around EUR four billion. That is almost seven times more than the annual amount of premiums written. This is why changes in the loss reserves and the success of investing the set-aside funds are important. The year 2019 was a success in this respect, but there are differences from year to year, and also between companies during the reference period.

Protection from balance sheet management

Over the last two decades, the two main reasons behind the pressure to make changes to the EUR four billion loss reserves have been interest rates and life expectancy. To make new provisions for pensions in preparation for the payment of compensation for last year’s loss events for several decades, we assume the return on investment on the pension assets to be very moderate, in accordance with the present interest rate. In the past, provisions have also been made when the interest rates have been high. Due to the reduced and exceptionally low interest rates, companies have been placing hundreds of millions of euros more in their loss reserves in recent years.

Life expectancy has had a similar effect. To make provisions for pensions, the expected duration of the pension is assessed on the basis of the best available information on how long the person will live. With the increase in life expectancy, we have had to increase the loss reserves as well. Insurance companies are increasingly in the position to use ALM methods such as derivatives to hedge against interest rate changes, whereas hedging against increased life expectancy is not so easy.

As a result, it is justified for insurance companies to temporarily have an opportunity to make reasonable profits from statutory workers’ compensation insurance, which is a part of social security provision, but only so that the amount of profit – or loss – stays within reason. In my view in looking at this phenomenon in Finland, a balance has been found for workers’ compensation.

Five years of the Workers’ Compensation Act

And how is the statutory accident insurance system doing anyway? I would say at least reasonably. The new Workers’ Compensation Act has now been in force for five years. No major shortcomings have been identified with regard to it, but there is always room for improvement. Keeping this in mind, those of us at the Finnish Workers’ Compensation Center and others in the leading companies and institutions providing workers’ compensation insurance like to keep on our toes.

It is our duty to raise concerns whenever a matter may require corrections to be made – if not before, then during the legislative process. The system should also have readiness to rapidly adapt to changes in working life. I believe that in 2021 we will be discussing matters such as the validity of workers’ compensation insurance in situations in which we cannot decide between employment and entrepreneurship, and also the forms of coverage for various working conditions.

The further development of legislation on workers’ compensation insurance is always a tripartite process led by the Ministry of Social Affairs and Health. The role of the Finnish Workers’ Compensation Center is to support the process by offering expert advice.

Importance of adapting to new phenomena

Treating cases of COVID-19 as occupational disease cases is one example of the system’s ability to deal with new situations. This new viral disease was very quickly identified as a potential occupational disease, and the first cases were resolved before Midsummer’s Eve in June. In Finland, the concept of occupational disease is a combination of the definitions provided in the List of Occupational Diseases and the open definition of occupational disease. The List of Occupational Diseases provides a tally of diseases and exposures that can be linked to a work-related cause with enough certainty. As this list is not exhaustive, compensation can also be awarded for diseases not included in the tally, such as COVID-19.

During 2020, the Employment Accidents Compensation Board, operating under the Finnish Workers' Compensation Center, processed 175 requests for a statement on the coronavirus disease. Of the 175 cases concerned, 138 were deemed occupational diseases. Nearly all the cases involved healthcare professionals, mostly nurses and practical nurses. Most of the exposures occurred during the spring or early summer. The Employment Accidents Compensation Board has processed less than ten notifications on coronavirus infections that were found in the autumn, and these cases involved healthcare professionals as well. The Board has not yet processed any coronavirus infection notifications involving professions other than in healthcare.

Looking ahead

The year 2020 saw the 125th year of workers’ compensation insurance in Finland as well as the 100th anniversary of the Finnish Workers’ Compensation Center. These were duly celebrated, but our focus is on the present and the future. Annually, more than 100,000 accidents in Finland still occur at work or during commuting, and approximately two thousand new cases of occupational disease are found each year. An effective, financially stable, and transparent insurance system will also be needed in the future.