Is the BGs' monopoly really hanging in the balance?

Privatization fails to attain the desired objective

Discussion prompted by a legal challenge to the BGs' monopoly
20 August 2007

Is the BGs' monopoly compatible with EU law? A number of trade associations have set themselves the objective of overturning the monopoly in Germany held by the BGs, the German institutions for statutory accident insurance and prevention, in order to bring about privatization of the accident insurance system in the industrial sector. To achieve this, they are launching what the lawyers responsible themselves describe as a barrage of lawsuits on the scattergun principle. Up to now, success had eluded them. In several cases, most recently on 20 March 2007, the German Federal Social Court confirmed that Germany's public-law system is consistent with the German Basic Law and does not contravene EU trade practice legislation.

Now, in a ruling by a single judge on 24 July 2007, the Higher Social Court of the region of Saxony has referred the issue of whether the BGs' monopoly is consistent with EU law to the European Court of Justice (ECJ). Critics of the monopoly describe this as a success. The facts, however, clearly support the German statutory accident insurance system. As long ago as 2002, in fact, the ECJ ruled clearly that a monopoly enjoyed by a mutually financed accident insurance system was consistent with EU law. The case concerned the comparable situation of INAIL, the Italian accident insurance system.

The campaign being conducted by the legal firm bringing the action has now acquired disturbing aspects. A website maintained by the firm refers to a product offered by foreign private accident insurance company. This offer however, requires that the legal firm first receive a mandate, for which costs are due, to sue against compulsory membership of the BG. Moreover, the law firm is raising false hopes: Firstly, because the case before the European Court of Justice has little prospect of success, and the companies must ultimately bear the costs of the action themselves; secondly, because a private system of accident insurance would benefit only a small proportion of the companies and businesses in Germany. Most employees and a majority of businesses would lose out were they to be insured privately against accidents, and would pay higher premiums for inferior cover.

Private companies – cheaper insurance?

The proponents of private accident insurance hope to obtain better customer service, less bureaucracy, and above all lower costs. Experience in other parts of the world suggests however that if the standard of cover is to remain the same, it will not be cheaper, since unlike the BGs, private insurers must return a profit, besides facing the costs of sales and marketing. For this reason, they are particularly interested in "good" risks, such as office work. For all forms of hazardous work, ranging from the construction occupations, through the metalworking industry, to many parts of the service sector, premiums may be expected to increase, in some cases drastically. For this reason, where other countries do have private systems, some occupations remain insured by public-law bodies. Examples include seamen in Belgium and agricultural employees in Finland.

In addition, private insurance companies are generally only willing to insure against occupational accidents. Most refuse to insure against occupational diseases, which are considerably more expensive. The risk is too high and the attainable profit too low. What insurance company, for instance, would insure against occupational diseases which were caused in the past but owing to their latency period may not become apparent until some time in the future? Who would be willing to insure against diseases which do not arise until after the private insurer has ceased to exist? Who will insure an employee who may have contracted an occupational disease whilst working at several different companies?

For this reason, occupational diseases are also insured by public bodies within the private systems in Portugal, Belgium and Denmark. Consequently, businesses in these countries must pay contributions to the public occupational disease fund in addition to the premium paid to the private insurer. Further cost factors also arise. Who, for example, becomes responsible for legacy obligations? Should the statutory accident insurance system be converted to a system of private insurers, the legacy pensions entitlements in Germany can be expected to total around €90 billion.