FUNDAMENTALS OF INSURANCE (PART-3) INSURANCE AS A SOCIAL SECURITY TOOL 1. INTRODUCTION Hello students, welcome to the series on Fundamentals of Insurance. The topic of this lecture is insurance as a social security tool, the objectives of this lecture are to make you understand the social insurance program, in this lecture we will understand how the social insurance programs contribute to the security of the individuals. We have already discussed that insurance is a social device while discussing the need and purpose of insurance; we came to know that insurance protects the life as well as the property of the individuals. If the life and property of the individual are safe, then we feels secured, so it is the duty of the government to protect the life as well as the property of the individuals through insurance. Every individual has a right to social security, every economy be it mixed economy, socialistic or capitalistic economy has to provide the security to its individuals. This social security is provided to the individuals by the government through insurance, government provides special provisions to the weaker section of the society like unemployment benefits, old age benefits, maternity, sickness and disability benefits as well as pension. The government provides all these privileges through the means of insurance thus insurance is considered to be a social security tool, the amount of insurance is invested to generate capital and thus insurance contributes to the economy of the country.
2. SOCIAL SECURITY PROGRAMS Let us continue this lecture with the discussion of social security programs, the social security programs act as a tool for the individual to deal with the risk that they may face regarding their income. The old age survivors, disability and health insurance programs are commonly known as the social security programs. Such programs protect the eligible worker as well his dependents against the financial losses caused due to death, disability, sickness or old age of the worker. Now let us talk about the need of social security, social security protects the worker and his family by providing benefits packages in financial security as well as health care. Social security schemes guarantee long term sustenance to the families when the earning member retires, expires or suffers from disability. Social security system act as a facilitator by helping the people to plan their own future through insurance but it is important that such schemes must possess the active support and involvement of the employee as well as the employer. Employees or workers should be aware of the kind of social security protection which they are entitled to because that is their right and at the same time it is the duty of the employer to provide adequate social security coverage to all the workers. Now let s talk about the history of social security in India, earlier social security needs of an individual in India were taken care of by the joint family system, it was because the joint family system was prevalent in India but providing for this social security was possible only for the joint family which possess the assets like land, in that case it was considered as a well to do family. Joint family system kept all the individuals together by engaging the family members in cultural traditions so all the members of the joint family had a feeling of shared responsibility towards the other members of the family. If the family had resources then it provided for the special needs of old members of the family as well as the members who were suffering from the poor health but with the demographic change, increase in migration and urbanization, the concept of joint family system is fading away and the number of nuclear families are increasing.
This has increased the need for formal system of social security provided by the government; the success of social security schemes in India depends upon the information and awareness of such schemes. Social security in the Indian context means assuring the individual of a basic minimum income for himself and his dependents and to provide protection to the individual from uncertainties. The government is responsible for developing appropriate system for providing protection and assistance to the work force. In this era of globalization and technological changes, it is must that the government should provide social security to the workforce and must keep an eye on the employers to make sure that they are providing the social security benefits to the workers. The Indian workforce is divided into organized and unorganized sector; the organized sector includes the establishments covered under the Factories act 1948, the shops and commercial establishment acts of the state governments, the industrial employment standing orders act 1946 etc., the social security benefits covered under these legislations are provided to the workers through the organized sectors. According to the Ministry of Labor and Employment, Government of India, the unorganized sector is characterized by the lack of labor law coverage, seasonal and temporary nature of occupations, high labor mobility, dispersed functioning of operations, casualization of labor, lack of organizational support, low bargaining power etc all of which make it vulnerable to socio economic hardships. Unorganized sector in rural areas consists of landless agricultural laborers, small and marginal farmers, share croppers, persons engaged in animal husbandry, fishing, horticulture, bee keeping, toddy tapping, forest workers, rural artisans etc. Unorganized sectors in urban area consist of manual workers in construction, carpentry, trade, transport, communication etc and also influence street venders, hawkers, head load workers, cobblers, tin smith, garment makers etc.
3. FUNCTIONS OF THE SOCIAL SECURITY DIVISION IN INDIA Let us now discuss the functions of the social security division in India, as per the labor and employment ministry of government of India, the various functions of social security division are: The social security division takes care of the matters concerning framing of social security policy especially for the organized sector of the workers. It takes care of the administration of the employee s state insurance act 1948; It takes care of the administration of the employee s provident fund and Miscellaneous Provisions Act 1952 and the three schemes framed under these acts are the Employee s Provident Fund Scheme 1952, the Employee s Pension Scheme 1995, the Employee s Deposit Link Insurance Scheme 1976, the other acts are Workmen s Compensation Act 1923, Maternity Benefit Act 1961, Payment of Gratuity Act 1972, it also takes care of the establishment matters relating to the employee s state insurance corporation, constitution of ESI corporation, standing committee and medical benefit council of ESIC as also regional board. It takes care of the administrative matters of ESI Corporation including implementation of ESI scheme in new geographical areas, opening of sub regional offices of ESIC and upgrading of the medical facilities. The annual reports budget and accounts and matters connected with auditing of accounts of the ESIC and the EPFO are the important functions of the social security division. It also addresses the issues relating to international social security association or the ISSA and the other international social security organization. It does the function of processing of ILO conventions relating to the social security. It also takes care of all the parliamentary matters and MP or VIP references in relation to these acts and legislative matters or amendments in respect of the aforesaid acts.
It takes care of the vigilance matters, disciplinary proceedings relating to officers of EPFO and ESIC, the representation from employees of ESIC and EPFO and general public grievances on ESIC or EPFO or social security measures in India is also taken care of by the social security division. The social security division takes care of all the matters relating to setting up of EPF, applet tribunal and the establishment matters and appointment of the staff. Its function is to constitute the central board of trusties and regional committees of EPFO. The other functions of the social security division are it deals with all the matters relating to pattern of investment of provident fund money, declaration of rate of interest on the provident fund, enhancement of the rate of provident fund contributions, budget of the EDLI schemes and EPS, it takes care of the payment of central government contribution and administrative charges for Family Pension Scheme, Deposit Linked Insurance under the EPF Act as well as the Assam Tea Plantation Provident Fund Act, it also deals with the references relating to recovery of EPF or ESI dues or exemptions and exclusions from the EPF and MP act, also the ESI act. So students, these were the various functions of the social security division of India. 4. LAWS RELATED TO THE SOCIAL SECURITY IN INDIA So students, now let us talk about the various laws relating to the social security in India, these laws are the Employee s State Insurance Act 1948 or the ESI act, this act covers the factories and establishments with 10 or more employees and it insures the comprehensive medical care to the employees and their families. It also insures the cash benefit to the employee s and their dependents, during the sickness and maternity and the monthly payments in case of death or disability. The next act is Employee s Provident Fund and Miscellaneous Provisions Act 1952 or the EPF and MP act.
This act covers specifically schedule factories and establishments employing 20 or more employees; it provides terminal benefits to provident fund, super annulations pension and family pension in case of death during the service. For the workers in the coal mines and tea plantation, there are separate laws for special or similar benefits. The next act is Workmen s Compensation Act 1923 or the WC act, this act provides payment of compensation to the workers and his dependents in case of employment related injuries resulting in death or disability of the worker. The next act is the Maternity Benefit Act or MB Act 1961, this act insures 12 weeks wage during maternity as well as paid leave in certain other related contingencies. The next act is the Payment of Gratuity Act 1972 or the PG act, this act insures 15 days wages for each year of service to the employees who have worked for five years or more, this act is applicable at the establishments having a minimum of ten workers, it is important to note here that separate provident fund legislations are enacted for the seamen and workers employed in coal mines and Tea plantation in the state of Assam. These laws have already been enacted but the Indian government is trying to strengthen the social security provision and for this it is in the process of amending these acts through various new initiatives, these new initiatives are the various central acts on social security are been examined on the recommendation of the second national commission on labor, the amendments have been proposed in the EPF, MP act and the ESI act. The amendments suggestions are also received for the Maternity Benefit Act and the Workmen s Compensation Act, innovative measures are proposed for social security schemes of EPFO and ESIC like flexible benefit schemes for specific requirement of different segments of the Indian population.
5. THE WORKING OF EMPLOYEES PROVIDENT FUND ORGANIZATION AND THE EMPLOYEE S STATE INSURANCE CORPORATION Now let us discuss the working of Employees Provident Fund Organization and the Employee s State Insurance Corporation, for making the social security provisions available to the workers as well as the employers. The main aim of both the organizations is to act as the representatives of the government and reach out to the employees and the employers by providing them greater accessibility and client satisfaction. As per the latest figures quoted by the ministry of labor and employment, government of India, EPFO covers over 3,93,824 establishments all across India, approximately 3.9 crore EPF members and their dependents are benefited by the social security schemes administered by the EPFO. The number of EPF members is increasing and in order to provide better services to both employees and employers, EPFO has launched the project reinventing EPF India since June 2001, this project provide the employers and the employees better services and this project assists the employers in reducing the cost of compliance and to register geometric growth in all fields. Through this project, unique identification number or the social security number is allotted to the EPF members and business numbers are allotted to the employers. The activity of allotting the social security number is carried out in small phases for effective data collection, the main criteria for allotting SSN includes centralized control of uniqueness, least manual intervention during allotment should be insured, 100% uniqueness accuracy should be attained at all the levels, the social security number solves the problem of providing social protection to migrant labor, it makes the database of EPFO adaptable to the present trend of high job mobility amongst workers.
Now look at this table as available by the ministry of labor and employment ministry, government of India website, this table will highlight the types of programs offered by EPFO. Now look at this table, the program name is Employee s Provident Fund or the EPF, the program type is mandatory and the financing is as mentioned in this table, the employer contributes 1.67 to 3.67 %, employee contributes 10 to 12 % and government s contribution is none. This scheme covers firms with 20 plus employees. The next program is Employee s Pension Scheme or the EPS, the program type is mandatory, employers financial contribution is 8.33 %, employee s contribution is none and the government s financial contribution is 1.16 % and it covers the firms with 20 plus employees, the next scheme is Employee s Deposit
Linked Insurance Scheme or the EDLI. The program type is mandatory, employer s financial contribution is 0.5 % and the employee s contribution is none, the government contribution is also none and it covers the firms with 20 plus employees. The various other programs ensuring social security benefit are Civil Service Pension Scheme, Government Provident Fund, Special Provident Funds, Public Provident Fund, Personal Pension, State Level Social Assistance and National Old Age Pension Scheme. Out of these programs, some of the programs are mandatory to be provided to the employee by the employer, some programs are voluntary and other s are sponsored by the government but the criteria for each program is different, the financing of these programs may be through central or state government or through contribution of both employer and employee. 6. THE WORKING OF ESIC Now let us discuss the working of Employee s State Insurance Corporation, the main aim of Employees State Insurance Scheme is to provide social security benefits to ensured workers in the organized sector. This scheme provides infrastructural facilities to provide medical care to the insured persons and their dependents, this organization has a network of about 850 local offices and pay offices. Medical care is provided through 141 ESI hospitals, 43 ESI annexes, 1451 ESI dispensaries and 2789 clinics of insurance medical practitioners. The total number of medical officers under this scheme is about 10,480 as per the figures indicated by the Ministry of Labor and Employment, Government of India. Low paid workers who receive daily wages up to Rs.40 have been exempted from the payment under this scheme. Approximately 6 Lakh insured workers get benefited through this scheme; sickness benefit is provided to the insured person suffering from chronic or long term diseases.
Such persons are provided with an extended period of coverage up to 2 years at an enhanced rate of 70 % of daily wages. ESIC will also develop super specialty hospitals in Delhi and Maharashtra area, the amount reimbursable by the state governments for running the medical care scheme has been increased to 87.5 % of Rs.700 per capita with effect from 1 st April 2003, the ESIC aims at improving medical services through modernization of hospitals by upgrading their emergency and diagnostic facilities, development of departments as per disease profile, waste management, provision of intensive care services, revamping of grievance handling services, continuing education programs, computerization and up gradation of laboratories etc will be taken care of by the ESIC. It will also promote Indian system of medicines or ISN and Yoga. So students, this was how these Employees State Insurance Corporation works. 7. CONCLUSION In developed countries, social security program is linked with the wage employment but in India, the social security system is different, it is because we do not have an existing universal social security system, the problem of exit rate from the work place being higher than the replacement rate is not experienced in India but lack of employment opportunities is the main problem here. Mostly the work force in the informal sector is not on record, so the system of payroll deduction is difficult to apply. The main concern of social security division is the retirement income of the workers because most of the old aged persons reside in India. This concern is because of the gap between the workers who do not have access to any formal scheme of old age income and the estimated workforce. The nuclear families also contribute to this problem otherwise the joint family system had their own system to provide for the old age benefits but the government and the insurance sector is working to improve the condition now.
More over getting the data together from other ministries and social assistance programs, food for work programs, tax concessions etc is a problem. It is important to highlight the initiative taken by the Ministry of Labor and Employment, Government of India and this initiative is Varisht Pension Bema Yojna or the VPBY. Let us discuss this scheme, this scheme was proposed in the year 2003 and 2004 budget by the Ministry of Finance and it was to be administered by the Life Insurance Corporation of India, the main features of this scheme are under VPBY, any citizen above 55 years of age could pay a lump sum and get a monthly pension are pegged at Rs.250 and Rs.2000 per month respectively, these amounts are not indexed to inflation. There is a guarantee return of 9 % per annum for this scheme, the difference between the actual yield earn by LIC under this scheme and the 9 % will be made up by the Central Government. The EPF and MP act is proposed to be amended suitably to allow EPF subscriber to invest in the VPBY, the EPF and MP Act is proposed to be amended suitably to allow EPF subscribers to invest in the VPBY.
It is important that the policy makers and administrators should come together to resolve the problem related to the social security in our country, the efficiency of publically managed social security scheme should be improved and should be opened for the private sector. The private insurance schemes can be supplemented with the mandatory schemes managed by the government; the problem of coverage gap in social security provision can be addressed by reengineering of the institutional arrangements. This will increase the efficiency in working, it is important that an appropriate legislative and administrative framework should be created to increase the social security coverage especially in the unorganized sector. The administrators should be awarded by the quality work in this sector, for example Employees Provident Fund Organization has been in existence since last 50 years but no instance of scam or fund have been exposed to speculation and risk has been brought to notice.
EPF has proposed to extend the critical life benefit of providing shelter through Shramik Awas Yojna. This scheme provides cost effective housing scheme specific for the EPF member, for this scheme, organizations such as HUDCO, housing agencies, State Governments, employers and EPF members have decided to join hands together. Now you know how insurance helps as a social security tool and how insurance helps the social security division of India to provide benefits to the individuals, Thank you.