FROM OBLIGATION TO BUSINESS: THE CREATION OF INSURANCE COMPANIES IN SPAIN BY BUSINESS INDUSTRIALISTS
Jerònia Pons Pons
Universidad de Sevilla
thPaper 8 EBHA Conference
16-18 September 2004.
Session 5C: Saturday 11.30-13.00
First draft. Do not quote without permission.
In 1900, a whole series of institutional changes affecting the world of labour relations
1took place in Spain. In this year, the first law dealing with accidents in the workplace was
2passed. From then on, employers in industry, and a few agricultural employers, became responsible for the accidents of their workers. This law, despite the fact that that it did not oblige employers to insure their workers, is considered as the origin of social insurance in Spain (Alonso Olea, M, 2000). The 1900 law had an important effect on the social and economic aspects of insurance: a) the state promoted the voluntary taking out of insurance against accidents at work; b) a new branch was created within the private insurance market c) foreign companies specialising in this area installed themselves in the Spanish market d) specialised Spanish companies and insurance mutuals were created. The insurance against accidents at work, however, had different connotations with respect to other branches of
3private insurance or other kinds of social insurance (Cuesta Bustillo, 1988; Montero García and Martínez Quinteiro, 1988 and Samaniego, 1988). The clients of this type of insurance were employers. Below, we will try to analyse how some businessmen and employers’
associations in Spain were interested, from the very start, in participating in the development of insurance against accidents at work. Some of them even converted this responsibility, and what later became an obligation, into a lucrative business.
The following legislative changes, which were to date up to 1963, the year in which the Social Security law was passed in Spain, introduced modifications in the business which
1 The legislative background in G. García González (2001), pp. 395-403. 2 The law that was passed was strongly influenced by the French law of 1898 (Frax and Matilla, 1998). This law differs in many aspects from the law applied under the Anglo-Saxon system, based to a large extent on the system of compensation. For the British version see Dinsdale about the Employers liability insurance (1954, pp. 147-173), or consult the American case studied by Fishback and Kantor about the worker’ Compensation Insurance (1996, pp. 809-836; 1998, pp. 109-139 and 2000). 3 Diverse analyses of private insurance in Spain can be found in Maestro (1993), Frax and Matilla (1996 and 1998) and Pons (2002 and 2003).
4mutual and other insurance companies had to adapt themselves to. The Matos law, passed in
1922, encouraged the development of this insurance, although it continued being voluntary. Under the new law, the fines imposed on employers for not informing about accidents within the following 24 hours were increased. As a result of the new law, the costs of mutuals and other insurance companies went up as the compensation in cases of temporary incapacity of workers was increased from half to three quarters of their salary. This last modification increased the difficulties of many insurers, as their costs went up even more than their income.
ndNevertheless, the changes that had the greatest impact took place during the 2 Republic. In
1931, insurance against accidents at work was extended to agricultural workers, and in 1933
5. The obligation of the employer to insure his insurance became obligatory in industry
workers increased the amount of business and stimulated an interest in creating employers’ mutual companies. The interest of the commercial insurance companies also grew. The obligation to insure increased the amount of business because the number of insured workers rose, and consequently the number of premiums collected. Profits went up, as the accident rate did not increase in proportion to the rise in numbers of workers insured. This was due to the incorporation of large groups of workers with little risk at work. This increase in business continued after the Civil War into the first years of the Franco regime. Finally, in 1963, the Social Security law prevented commercial companies from providing this type of insurance, although private management was still allowed, however, by letting the employers’ mutual companies for insurance against accidents at work to continue operating, but now as collaborating bodies of the Social Security.
4 A legislative codification of labour regulations in Martín Valverde and others (1987) 5thth In agriculture, regulation was by means of the decrees of 12 June and 25 August, 1931. The regulations thcovering accidents in industry were modified by the fundamental provisions of the law of 4 June, 1932, the law thstof 8 October, 1932 and the regulation of 31 January, 1933 (Nadal and Sudrià, 1983, pp. 200).
THE EVOLUTION OF THIS BRANCHE IN THE SPANISH INSURANCE MARKET
In order to understand the importance of insurance against accidents at work within
the private insurance market in Spain, it is useful to consider the following data (charts 1 and
a) The percentage of the premiums charged by the authorised bodies in the branch of
accident insurance grew with respect to the official premiums of all branches. In
1912, the percentage insured was 8 percent. After the Civil War, in 1940, it
reached 21.44 percent of all premiums. In 1953 the branch of accidents at work
covered 28 percent of all the premiums of private insurance.
b) The premiums per company had a slow but sustained growth until 1932. In 1912
the average per company was 621,839 pesetas. By 1932 it had gone up to
1,336,355 pesetas. The following year the figure had reached 2.5 million pesetas
(Pons, 2002, p. 117). The amount of premiums per company almost doubled that
year due to insurance becoming obligatory for the majority of workers, both
industrial and agricultural.
c) During the first third of the century, the majority of insurance companies or
authorised mutuals were Spanish. This was a distinctive feature of the branch of
insurance against accidents at work. However, the role of foreign companies was
important, above all due to the share of the market that they were to achieve during
a few decades. From 1900, taking advantage of the new market originated by the
Spanish law, foreign companies specialising in accidents installed themselves in
Spain. In this case, unlike in the branches of life or fire insurance, the foreign
companies did not dominate their branch of business in Spain from the very start.
Only between 1925 and 1927 did they outnumber the Spanish companies. Their
participation was, nevertheless, very significant during various decades. Between
1900 and 1940 they made up an average of 40 percent of all insurers. Their share
of the market was to be found between the 36 percent they had in 1912 and the 47
percent of all premiums reached in 1932, according to the official data of the
Dirección General de Seguros (State Insurance Office). The main foreign
companies were French, Italian, Swiss and British.
d) From the beginning, the government promoted employers’ mutual companies for
insurance against accidents at work, facilitating their creation, demanding smaller
deposits from them than from commercial companies and taxing them lightly. The
initial deposit varied between 5,000 pesetas and a maximum of 50,000 pesetas,
depending on the geographical area covered by the employers’ mutual company.
However, the commercial companies had to pay an initial deposit of between
150,000 and 200,000 pesetas. Governmental protection of the employers’ mutual
companies had its greatest effect after insurance against accidents at work was
made obligatory in Spain. In 1935, there were 30 commercial companies, 155
industrial employers’ mutual companies and 78 agricultural employers’ mutual
6. Of the companies operating in the branch of insurance against accidents at work
155 industrial employers’ mutual companies that operated in accidents at work, 72
percent had been created in the Republican period between 1931 and 1935 (table
e) The data published by magazines of the sector which include the employers’
mutual companies for accidents at work show that these did not make up more than 15 percent of the premiums of the business from 1917 to 1932. However, when insurance became obligatory in 1933 their share of the market rose to 20 percent. A year later it
6 Data taken from the Boletín de Seguros y Ahorro [Insurance and Savings Bulletin] (1936), pp. 30-49.
was over 36 percent, which meant that this kind of company had become the market
leader, ahead of the Spanish and foreign commercial companies which each controlled
around 30 percent.
This data allows us to see how the branch of insurance against accidents at work
became an attractive business that attracted not only insurance businessmen but also
employers in industry and later in agriculture. Employers were not only interested in
participating in order to recover part of their costs through a share out of profits, but
also to have greater control over the premiums, over workers who suffered an accident,
and over the institutions created to monitor that successive regulations dealing with
this matter were obeyed. However, the ways in which they decided to participate in the
business were different. Sometimes, with the support of employers’ associations, they
opted for mutual companies. Others participated in an individual fashion as partners in
commercial companies. Nevertheless, at certain times both options were closely linked.
In certain cases, the employers’ mutual companies even became lucrative insurance
companies due, at least in part, to the business of insurance against accidents at work.
THE EMPLOYERS’ ASSOCIATIONS AND INSURANCE AGAINST ACCIDENTS
From the first legislative changes with respect to accidents at work, many employers’ associations of different political and professional composition showed interest in promoting associations of mutual aid which, without profit motives, covered the employers’
responsibilities with regard to the accidents of their workers. At first, the 1900 law established a minimum of 1,000 workers and 20 employers in order to set up an employers’ mutual
7 A history of the employers’ mutual companies of accident insurance, by the employers themselves, in Unespa (1981) and Valenzuela de Quinta (2000).
company for insurance against accidents at work, and to have it included in the register of companies authorised to operate in this branch of insurance. In the first decades, the number of workers was an obstacle for the diffusion of mutual companies. As a result, in October 1925, the government modified the legislation, allowing mutual companies with only 100 workers to enrol in the register of the Ministry of Labour, Trade and Industry.
A series of basic characteristics of these mutual companies can be established, on the basis of official quantitative data (premiums and the number of mutual companies), the company history of some of the employers’ mutual companies already studied, and also thanks to new company sources. Some of the elements that help explain the interest of employers in participating in this business can also be noted.
From an analysis of the employers’ mutual companies for insurance against accidents at work mentioned below, important qualitative data has been extracted which allows us to determine the role of these companies in the development of this field. The three mutual companies mentioned were created in key moments and in particular contexts. In 1900, an employers’ institution named Centro Industrial de Vizcaya (Biscay Industrial Centre),
promoted the creation of the Sociedad de Seguros Mutuos de Vizcaya sobre accidentes de
Trabajo (SSMV) (Alonso Olea, E., 1996). This mutual company was comprised of different firms and industrial associations of the province of Biscay, representative of the industrial
ththdevelopment in this region during the last quarter of the 19 century and the start of the 20
century, which had been based on the mining of iron. This expansion had led to a diversification of firms in various fields such as the chemical industry, paper mills, insurance, etc. The second mutual company appeared under the guidance of the Federación Patronal de
Mallorca (Employers’ Federation of Majorca) in 1921, in the context of the drafting of the Matos law, which was finally passed in January 1922. Despite this initial link, and due to internal disagreements within the Federation, the mutual company was ceded to the founding
partners in 1924 under the name of Mutualidad de Accidentes de Mallorca (Mutua Balear
from 1936). The main promoter was Narciso Canals, a businessman of the textile sector (Pons, 1998 and Bibiloni and Pons, 1999). Finally, when insurance against accidents at work became obligatory in 1933, the third mutual company analysed was created. In this case, it was launched in 1933 by the association of olive exporters of the province of Seville. It was called Seguros Mutuos de Accidentes de Trabajo (SMAT). The 18 businessmen who founded it
brought together the main companies of the sector and insured 1,355 workers (Table nº2). On the basis of these three cases, together with the quantitative data available, the characteristics of these employers’ mutual companies can be established.
Firstly, one of the clearest characteristics of the employers’ mutual companies for insurance against accidents at work is the geographical area in which they operated.
thOriginally, and during the first decades of the 20 century, most of the employers’ mutual
companies were of a notably local and provincial character. Of the 155 industrial mutual companies in existence in 1935, only 24 percent operated on a national scale. 35 percent only operated in a single province.
Secondly, it should be mentioned that on adopting the form of a mutual company these insurers did not have any stock capital. The founding partners provided the initial deposit needed to receive governmental authorisation. When new partners joined, they had to pay an inscription fee (5% in the case of the SSMV). However, the need to get new companies,
especially the larger ones, pushed those running many mutual companies to negotiate discounts or even to do away with the inscription fee in some cases. This happened especially in times of greater competition, with the commercial companies or among the mutual companies themselves. In the case of the Sociedad de Seguros Mutuos de Vizcaya, this
formula was applied to obtain the incorporation of some partners in competition with the insurance company La Polar (Alonso Olea, 1996, p. 15). Competition increased after 1932,
when insurance became obligatory and new mutual companies appeared. In the case of the mutual company of olive exporters, SMAT, they were already considering the possibility of
8. Unlike the commercial companies, this type of doing away with the entry fee by 1934
institution normally did not have agents. The increase in the number of partners was done on the basis of advertising, and the work of public relations was to a large extent left to their board of directors. For this reason, a strict interest in insurance was intermixed with other business, political and social aspects in these institutions. After this initial fee, employers should pay a percentage of their workers’ salary, in accordance with the category of the company. This percentage was open to variation for a long time, however, and this was one more resort used to favour certain associated companies by those running the mutuals.
There is a third element that distinguishes the employers’ mutual companies for accident insurance and explains, in part, their success among businessmen, especially from 1933 onwards. It is the matter of rebates, or refunds, of part of the premium paid by companies, in times of increased profits. Low premiums, along with the possibility of a refund of part of what had already been paid, were the most attractive elements when it came to choosing an insurer. In the case of SSMV, as soon as it managed to raise a reserve fund (of
? million pesetas), it started to hand out rebates.
It is certainly true, on the other hand, that the employers’ mutual companies
themselves initiated a system of inspection and of prevention of accidents in their companies. The systems of control were, however, very limited. Although many envisaged inspections of the associated companies to be carried out by engineers or architects, the reality was that to avoid extra costs they limited themselves to medical inspections to check the hygienic and sanitary conditions of the insured company. The first preventative programmes carried out were to prevent hernias. It is true, however, that in the odd case they did take action against
8 Archives of the insurer Seguros Mutuos de Accidentes de Trabajo (SMAT). Minute book of the Board of thDirectors. Minutes of 16 February, 1934.
companies that were so irresponsible in their working habits that they risked causing an important increase in the accident rate (Alonso Olea, 1996, pp. 10, 40, 43).
The growth of the employers’ mutual companies from 1933 onwards led to an increase
in competition in the accidents at work branch and the appearance of two phenomena: diversification and collusion. The growth in the number of mutual companies led to an attempt to reduce the fees. It is probably in the provinces where this process was most evident. The local employers’ mutual companies had to confront the expansion of national mutual companies with a long tradition, such as the Mutua General de Seguros set up in Barcelona in
91907. Diversification was the path chosen in order to deal with this competition. From 1933 onwards, the employers’ mutual companies tried to offer their partners other services, usually other types of product such as fire insurance, transport insurance or health insurance. In theory, the only requirement demanded by the government was that the accounting of the branch of accidents at work was kept separate from other types of insurance.
Although more difficult to detect, we know of cases of collusive agreements. That matter in the Balearic Islands market has already been described (Bibiloni and Pons, 1999) in
which Mutua Balear dealt with the competition from the Catalonian Mutua General de
Seguros by reaching an agreement with its main competitor, the Mutua Catalana de
Accidentes e Incendios. The latter promised not to contract insurance against accidents at work in Majorca, and the Majorcan company agreed not to contract fire insurance with the textile industries on the island. This agreement was intended to be detrimental to the Mutua
General de Seguros.
The control of the management of insurance against accidents by the employers themselves offered great advantages to the partners of the mutual companies. These included lower premiums, the paying back of premiums when there were profits, discounts in the case
9 In 1922 two Catalonian mutual companies (Mutua General de Seguros and Mutua Catalana ) already insured
100,.000 workers compared with the 5,635 of the SSMV (Alonso Olea, 1996, p. 26).