New Danish regulations impacting workers’ compensation insurance
Recent changes in Danish workers’ compensation insurance regulation have prompted some of the largest Danish non-life insurers to announce significant premium increases of e.g. 9.3%. The new regulation was adopted in December 2023 and effectively by January 1st 2024 and July 1st 2024.
The new regulation extends the coverage of workers’ compensation insurance. Most notably, the new regulation changes how the annual salary used to calculate the loss of earning capacity is set. The annual salary will now be set to the highest annual salary within the last five years prior to the time of injury instead of the salary of the year preceding the injury. This change is expected to cause higher compensation costs for insurance companies operating in the Danish market since the loss of earning capacity on average is expected to increase.
However, for people who have been working part-time for the 5 years leading up to the time of injury, the annual salary will decrease under the new regulation. Before, the annual salary would be set according to the potential full-time salary, but under the new regulation it will be set as the highest actual yearly income earned during the last 5 years without considering that the insured might only be working part-time for a temporary period. This temporary period could be caused by for example taking care of small children.
Below, you will find 3 examples of how the new regulation might affect the compensation. The examples are from The Association of Danish Law Firms’ consultation response regarding the new regulation[1].
Example 1: Policy with increased compensation costs
A person, age 35, who has had one year with increased income due to bonuses and/or paid overtime:
| Full-time salary | 400,000 |
| Highest annual salary 5 years prior to injury | 500,000 |
| Earning potential after injury | 250,000 |
| Loss of earning capacity (old regulation) | 38% |
| Loss of earning capacity (old regulation, rounded) | 40% |
| Loss of earning capacity (new regulation) | 50% |
| Annual compensation (old regulation) | 122,176 |
| Annual compensation (new regulation) | 190,900 |
| Increase | 68,724 |
| Increase in percentage | 56.25% |
The increase in the amortized value amounts to DKK 1.7 mill. which is income tax free.
Example 2: Policy with increased compensation costs
A person, age 35, who has had one year with increased income due to bonuses and/or paid overtime:
| Full-time salary | 400,000 |
| Highest annual salary 5 years prior to injury | 500,000 |
| Earning potential after injury | 400,000 |
| Loss of earning capacity (old regulation) | 0% |
| Loss of earning capacity (new regulation) | 20% |
| Annual compensation (old regulation) | 0 |
| Annual compensation (new regulation) | 76,360 |
| Increase | 76,360 |
| Increase in percentage |
The increase in the amortized value amounts to DKK 1.9 mill. which is income tax free.
Thus, a person with no actual loss in earning capacity could be considered as having lost earning capacity under the new regulation because of one year with bonuses and/or paid overtime.
Example 3: Policy with decreased compensation costs
A person, age 35, who has worked part-time for the past 5 years:
| Full-time salary | 500,000 |
| Part-time salary | 378,378 |
| Earning potential after injury | 250,000 |
| Loss of earning capacity (old regulation) | 50% |
| Loss of earning capacity (new regulation) | 34% |
| Loss of earning capacity (new regulation, rounded) | 30% |
| Annual compensation (old regulation) | 190,900 |
| Annual compensation (new regulation) | 86,679 |
| Decrease | 104,221 |
| Decrease in percentage | 54.59% |
The decrease in the amortized value amounts to DKK 2.6 mill. which is income tax free.
For further information or if you have any questions, you are welcome to contact us at
+45 3535 5462 or send an e-mail to: info@aktuarservice.com.
About Nordisk Aktuarservice
Nordisk Aktuarservice ApS is an actuarial consulting firm located in the centre of Copenhagen. We offer actuarial consulting and risk management through analyses customized to the individual customer. Our clients are mainly companies from Denmark and the rest of Scandinavia, including private companies, states, regions, and municipalities.
[1] https://www.ft.dk/samling/20231/lovforslag/L23/bilag/1/2758908.pdf, pages 91–93.
