translated from Spanish: Chilean mutual system: a failed implementation

First of all, to talk about the Chilean mutual system it is necessary to clarify that it as such does not exist. There is nothing Chilean about the Chilean mutual system. The Chilean mutual system is nothing more than the German system created in 1884 by the government of Otto von Bismarck and imported to Chile by the Association of Industrialists of Valparaíso, the Sociedad de Fomento Fabril and the Chilean Chamber of Construction. Under the wing of these trade associations, the German model was implemented in the country, giving birth to the Institute of Occupational Safety (1957), the Chilean Security Association (1958) and the Mutual Security Association (1966). This historical fact will come as a surprise to many, including the senior executives of the mutual societies, who with their continuous propaganda not only convinced the whole country of the Chilean origin of the system but also themselves. In fact, during my 10 years of service in the Chilean Security Association I was also convinced that the Chilean business genius had created the system. But that is not true. Neither Eugenio Heiremans nor any of the business heroes formulated the mutual system. The system is of German design. This historical fact is of the greatest relevance, because only by understanding the German model, also implemented in Canada, Austria, Norway, the United States, New Zealand, Italy and many other countries, is it possible to understand the anomalous and failed implementation in Chile. Let’s see below what the German model is about.
The German system was born at the end of the nineteenth century because of the massive accidents caused by the second industrial revolution (1870-1914) and the explosive increase in lawsuits for occupational accidents ruled in favor of the workers. Within a context of social and economic upheaval, the government of Otto von Bismarck supported by the German industrial elite decides to create a compulsory insurance against accidents at work to provide compensation to all events to injured workers and distribute the costs among companies. This compulsory insurance was created to protect companies, not to protect workers. The objective was to economically shield the companies from the costs derived from the compensation for damage generated by the lawsuits that were being adjudicated in favor of the workers in the German courts. The Bismarckian model, which aims at the collective distribution of costs and the individualized distribution of compensation in the form of medical and economic benefits – subsidies, indemnities and pensions – is based on five principles: (a) compulsory insurance, (b) compensation for any event without discrimination of fault, (c) compensation equivalent to medical costs and the loss of remuneration of the worker, (d) compensation paid in full by the employer and (e) collective distribution of the costs of compensation among the insured enterprises.
As can be seen, the objective of the German model was to compensate injured workers with medical services and the replacement of remuneration in case of temporary disability or compensation in case of permanent disability, and on the other hand, to distribute the economic costs among the companies contributing to the insurance. It is for this reason that in most of the countries where the German system was implemented they are known as “Workers’ Compensation Boards”, that is, workers’ compensation associations. Anyone who reviews the international academic literature will encounter the term “workers’ compensation” in almost all articles, even in those Chilean articles translated into English. In Chile, a notable exception, mutuals acquire fantasy names with terms such as security and slogans focused on prevention that have nothing to do with their original design or with their real purpose or operation. As I say, these organizations are insurance companies, they are not occupational safety companies, nor risk prevention, nor preventive culture. But don’t mutual societies in Chile do prevention management? They do indeed do prevention, but as the German model imposes, they do it in a subsidiary and economical way to reduce the costs of companies, not to improve the condition of workers. The risk prevention of mutual societies is captured by the economic role of insurance, that is, reducing the premium to be paid by insured companies. In addition, if the cost distribution is analyzed, the situation is even clearer. In On average, more than 80 per cent of the costs of these organizations are due to the delivery of medical and economic benefits, and about a tiny 5 per cent correspond to prevention management. Therefore, to argue that the essence of mutual societies is to do risk prevention is as absurd as saying that the purpose of cinemas is to sell popcorn. Just as the sale of popcorn in cinemas is a complementary activity, risk prevention is also a complementary activity for Chilean mutual societies. Now, the important thing here is to recognize that the German model implemented in Chile, under a wrapper of safety and prevention companies, is actually a business insurance to shield employers against the medical and economic costs derived from accidents and occupational diseases. That is the primary function of the German system and therefore of the Chilean mutual societies. Let’s now look at how this insurance works and how the premiums to be paid by employers are built.
This business insurance of German origin was born from the development of statistics and probabilities. Prior to this great mathematical advance, insurance in Germany was seen as a purely speculative activity, and as a Protestant country, it was unthinkable to apply insurance and therefore speculate to solve social problems. Speculation was seen as an immoral activity. With the birth of statistics and probabilities opens the possibility of predicting and distributing the cost of compensation in a scientific, non-speculative and therefore ethical way. This scientific advance is decisive to understand the functioning of the German model. Based on statistics and probabilities, the German system records and processes large volumes of information on accidents, lost days, fatalities, degrees of disability and incapacity for work, to assign companies to different groups according to similar levels of risk and thus determine collectively and individually the premium to be paid by each company. Essentially, the premium consists of a basic contribution that is derived from the sum of the costs of all the companies assigned to the same sector or group, and by an additional contribution, which allows to correct the deviation of each company in relation to the sector or group assigned. If the deviation of a company is positive, that is, higher than the average of the sector or group assigned, the company must pay an additional contribution. The construction of premiums is prospective, that is, it records and processes the information of the present to establish the premiums to be paid in the future. In other words, value is always a prediction, where the premiums to be paid by companies correspond to information collected and processed in the past. Now, beyond the specificities, the important thing here is to understand the role of information. As detailed in the historical texts, information plays a determining role for the operation of the system. The German system requires reliable recording and information processing of the number of accidents, days lost, illnesses, fatalities, etc., to construct the premiums to be paid collectively by each sector and individually by each company. Likewise, a thorough informational process is required to finance medical and economic benefits in real equivalence to medical costs and to the replacement of remuneration for temporary and permanent disabilities and the death of the worker – pension. It is for this reason that when this insurance is implemented in Germany, the state is given the responsibility of legislating around the construction of risk groups, the parameters for establishing premiums, defining the types of accidents to be compensated, qualifying them as of labor origin, administering appeals, resolving conflicts, informing workers of their rights, and finally, supervise the process of recording and processing information on occupational accidents. The “Imperial Insurance Office” is established in Germany to legislate and supervise the proper functioning of this business insurance so that the compensation is equivalent to the real costs of occupational accidents. In short, German insurance, anchored in an informational process of a statistical and probabilistic type, was thought and designed to be managed and supervised directly by the state.
In Chile, private mutual societies, which provide coverage of more than approximately 70% of the workforce, have excessive operational autonomy. This excessive independence is explained, on the one hand, by a rudimentary and weak state apparatus, which only in 1968 made compulsory the insurance against accidents at work – Law 16.744 – and timidly began to legislate in the field of occupational health and safety. At present, although mutual societies are regulated by the Superintendence of Social Security, the role of this entity remains meager and insufficient when compared to the attributions that state entities have in other countries where the German model operates. For example, in Chile, it is the mutual societies themselves that adjust their parameters and qualify accidents and diseases as work-related. According to figures provided by the Superintendency of Social Security, there are differences of more than 9 percentage points between mutual societies in relation to accidents classified as work, which shows a high inconsistency in the parameters used by mutual societies. In addition, according to figures from the same Superintendence, since 2012 a general increase in underqualifications can already be observed throughout the system. As for diseases, according to figures from the Superintendence, less than 30% are classified as of labor origin. A study by Bitrán asociados estimated as early as 2011 that a large percentage of occupational diseases were treated by ISAPRES as common diseases. Apart from qualification, another mechanism in the hands of mutual societies that strongly distorts accident figures is the accident reporting system. Underreports, that is, accidents and occupational diseases that are not reported to mutual societies, is a phenomenon known but not objectified by the Superintendence of Social Security in its ability to distort accident rates. The process of reporting accidents and illnesses, instead of being in the hands of the state, is captured by mutual societies, which ensure that their client companies pay as low a quote as possible. Employers benefit substantially from an accident reporting system that must be authorized and signed by the employer. It is not necessary to be an academic to understand that fewer accident reports translate into lower premiums, which on the one hand benefits the employer, and on the other, harms workers by disabling them in the delivery of medical and economic benefits. Objectivizing underreports is not an easy task. In this regard, the academic literature suggests that one way to study them is through the inconsistencies between accident rates, numbers of days lost and fatality rates. From this perspective, it can be seen, for example, that in mining there is a great problem of underreporting. According to figures from the Superintendence, in the decade 2007–2016, the accident rate of mining was the lowest compared to all other items. However, during the same period, mining was the sector with the greatest increase in lost days, that is, with a significant increase in serious accidents. How do you explain this paradox? Basically because of an increase in the underreporting of minor accidents, which are usually treated in the polyclinics of the mining companies and are never reported to the mutual societies. It is the phenomenon of underreporting of minor accidents that has allowed mining to be a leader in the decrease in the accident rate and, paradoxically, a leader in the increase in days lost over the period of a decade. In short, the Chilean dilemma of underreporting and underqualification, corrupt practices that disable German insurance from effectively distributing medical and economic benefits to workers, is basically explained by the absence of the state as an active participant and guarantor of occupational health and safety.
By way of conclusion, it is possible to argue that the Chilean mutual system is nothing more than a failed implementation of the German model, which anchored in a process of reliable registration and information processing, requires the direct participation of the state to ensure that occupational accidents and diseases are reported and qualified according to adequate and consistent parameters. Now, this is just the gateway to allow the recording and processing of information on occupational accidents and diseases to function properly so that the value of the premiums are equivalent to the real and effective value of the compensations to be dispensed to the injured workers. In this regard, it is necessary to specify that the Chilean accident rate is not a reflection of the accidents that actually occur, but of the injuries with lost time that are effectively reported and qualified by the mutual societies. That is, in a scenario of opacity and informational chaos such as the Chilean one, where underreports and underqualifications abound, a low accident rate does not reflect fewer injuries with lost time, but, a greater number of theirbreports and subqualifications. The Chilean mutual system, as a frustrated implementation of the German model, is a system that through economic incentives is structurally destined to produce underreports and underqualifications, and therefore, highly distorted figures. Finally, it is important to emphasize that in terms of occupational health and safety, Chile does not present problems of design, but of implementation. The German model is a great compensation system, it works like clockwork, as long as it is implemented properly: with direct management of the state.
 
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Original source in Spanish