Imagining a Brave New World.
Some things will remain the same. Employers are the primary risk bearer today and will be in the future. Risk management, loss prevention and disability management will remain as central themes. But the insurance system of today will fade like a vanishing hand into a matrix of new financial instruments for employers, insurers and individual workers.
Undergirding this new world will be massive databases on injury trends. We will be able to zero in on the claim details of, for instance, nursing homes in St. Louis. Loss runs will be as accessible as credit reports today. Call it the risk manager's workers' comp injury monitoring dashboard. In this new world the sale and purchase of insurance policies will move closer to the vast, responsive financial markets. Here's how it could work:
Say an employer today expects workers' comp losses of $500,000 and a conventional insurance bill of $800,000. In the new world, the employer buys not a traditional insurance policy, but a futures contract that shifts any losses over $500,000 to the seller. Hundreds of traders (not just a few insurers) are selling and reselling these contracts, continuously resetting risk appraisals.
AIG takes a look. It bids on the claims work for $50,000 and offers to sell the futures contract to the employer for $75,000. An AIG division bundles together many such contracts and remarkets the bundles, "Aiggies," to a market of buyers. Does the market favor Aiggies over, say, "Higgies," bundles offered by The Hartford? There's a new answer by the minute.
In this new world, loss prediction will be driven by a market of bundles of claims and bundles of bundles. The pricing of this market by the many will be more reliable than the view of a few actuaries.
Workers will be free to buy in the private market disability insurance covering both work related and personal disability insurance. Tax credits will help low income workers buy policies. This insurance will list benefits to cover unintended losses of income, including industrywide layoffs, technological obsolescence of work skills, sickness and injury.
Such a unified view of work and wage risk management is a compelling idea for today. Work, education, career and retirement options are more individualized than they were at the birth of the workers' comp system. Risk before was imposed on us. Pain, job loss and financial ruin were thunderbolts from the gods, or from industrial fate. Today, catastrophic risk has faded and and personal options are broader. Between the workers' comp system of today and this new world is a transformation of the worker from a pawn of the employer to a risk manager, rich in information and options. Why not make options for financial protection more open to individual choice? Injury risk has changed immensely. Not only are there fewer injuries--fewer every year--but injury risks, like lifetime risks, have taken on the character of individualized trade-offs. Safety regulations will remain. Individuals for which injury risks may be hard to predict could be covered by a continuation of the current system. Egregious behavior will incur prosecutorial fury. But employers and their workers will, however, have more choice. And on balance that's good.
PETER ROUSMANIERE is a regular columnist for Risk & Insurance. He can be reached at firstname.lastname@example.org
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|Title Annotation:||Workers' Comp|
|Publication:||Risk & Insurance|
|Date:||Sep 1, 2004|
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