Consider for a moment where we would be—as a society, an economy and an insurance industry—without workers’ compensation.
With workers’ compensation celebrating its centennial this year, it is worthwhile to examine just how big an impact this critical line of coverage has had on our lives.
First, a quick history lesson.
We’re just a few weeks away from the system’s 100th birthday—Sept. 1, 1911, when the first workers’ compensation law took effect in Wisconsin. For many workers, it was a grim time. Workplace deaths were far more frequent compared with today’s relatively few fatalities. Families were often left destitute if the breadwinner suffered a catastrophic injury or became ill because of his job.
We now take workers’ compensation for granted, but a century ago the notion of government imposing financial obligations on employers and limiting legal rights for employees was pretty radical and controversial. Many employers (as well as legislators and state judges) considered the very concept of mandatory workers’ compensation unconstitutional. Unions often opposed initial efforts to establish the workers’ compensation system as an “exclusive remedy,” concerned that business lobbyists would convince government to set unacceptably low benefit levels and leave them without recourse to the courts.
Unions argued that workers had more to gain by suing their employers. Some even suggested that workers’ compensation would discourage companies from making their workplace safer by transferring the risk and cost of injuries to third-party insurers.
In truth, the legal deck was stacked against injured workers without a workers’ compensation system in place, and workplace safety was already a low priority for too many companies. Employers that were sued were able to escape blame and liability with a number of legal defenses, including if the employee knew about a potential hazard beforehand, or if a fellow employee was even partly to blame for an accident.
Indeed, with no uniform system in place to care for those who were hurt or became ill on the job, it was pretty much every man and woman for themselves if an accident occurred.
Wisconsin Led the Way
Events such as the infamous Triangle Shirtwaist factory fire that killed 146 garment workers in New York in March of 1911 shined a harsh spotlight on the unsafe working conditions under which many were routinely toiling. It also exposed the lack of a reliable safety net to rehabilitate and compensate those hurt on the job and unable to work for a time (or ever again), as well as take care of the families of those who lost their lives.
(The New York Court of Appeals rejected New York’s first workers’ compensation law as unconstitutional the day before the tragic Triangle fire, citing a violation of employer’s due process rights. The state went on to change its constitution after the Triangle fire and activated its own workers’ compensation system in 1914.)
Once Wisconsin took the plunge and put workers’ compensation on the map, however, the system expanded nationwide fairly quickly. By 1920, only eight states lacked workers’ compensation laws; by 1949, each state had a system in place.
What if opponents had succeeded in heading off the creation of workers’ compensation? Consider for a moment that we inhabit an alternative universe. Imagine what life would be like without this insurance. We would likely see:
- Far more litigation, resulting in much higher legal costs for employers;
- More injured workers going without proper treatment and having to wait months or years for replacement income and compensation, if they received any benefits at all;
- Longer absences from work and far fewer injured parties returning to their jobs even in a part-time or “light-duty” capacity, resulting in lower productivity overall; and
- A far more combative workplace, and perhaps even a more belligerent union movement, as employees would have been more likely to organize to secure fair treatment for members hurt or killed on the job.
Would we have also seen many more injured workers without a system in place to keep employers focused on loss control? The threat of litigation and increased union activity might have eventually driven employers to improve workplace safety regardless of whether workers’ compensation came into being, but that would have been a much tougher road to travel to produce the relatively safe working environments we typically enjoy today.
In any case, the impact of workers’ compensation has indeed been immense and overwhelmingly positive. Consider that it:
- Created a humane risk-transfer system that has spread the burden of paying and treating injured employees.
- Largely removed the need for injured workers to sue their employers (although some would say there is still far too much litigation in the system).
- Freed injured and sick workers from having to pay doctors out of their own pockets if their job was responsible for their medical condition.
- Integrated a loss control mentality into the social compact that greatly reduced the frequency of workplace injuries and fatalities. (Fears of workers’ compensation creating a “moral hazard” because third parties—insurers—were paying claims instead of employers were eased by the experience-based rating system, which offered a powerful financial incentive to provide a safe workplace.)
The insurance industry is certainly grateful for the business. Workers’ compensation ranks fourth in premiums generated among property & casualty lines, trailing only private passenger auto, homeowners’ multi-peril, and “other liability,” according to the Insurance Information Institute. Even with a recession-dampened $32 billion in net written premiums in 2009 (the total was nearly $42 billion in 2006), the line accounted for about 7.5 percent of total P&C premium volume that year.
Workers’ compensation is not perfect. Litigation is still far too prevalent in a supposedly “exclusive-remedy” system. The private insurance market has failed to thrive in too many states, thanks in large part to excessive regulation. Medical care costs, particularly for prescription drugs, are still soaring.
Yet whether you are considering the health of the economy, the society at large, or of the insurance industry in particular, as well as your own personal well-being and peace of mind, it would be difficult to argue that we’d be better off without workers’ compensation.
Sam J. Friedman, Insurance Leader at Deloitte Research, will further discuss the impact of worker’s compensation and the challenges the industry faces over the next century during the Workers’ Compensation Educational Conference in Orlando on Aug. 23. He may be reached at email@example.com.