Unemployment Insurance Interventions: Private/Public Insurance sector products past, present and future

1. UNEMPLOYMENT INSURANCE
Presentation by Jaswanth Singh G
Social Security Association of India – Karnataka Chapter
4th September 2017 @ Century Club Bengaluru
National Seminar on
'SECURING SOCIAL PROTECTION FLOOR THROUGH UNEMPLOYMENT INSURANCE
Unemployment Insurance Interventions: Private/Public Insurance sector products past, present and future

2. Insurance
Insurance is a contract between two parties the Insurer and the Insured by which
the Insurer agrees to make good financial loss suffered by the Insured on account
of loss or damage to the property or personal injury caused be any peril Insured
against, provided the consideration (Premium) have been paid

4. Unemployment Insurance
Unemployment insurance is a small source of income for workers who have lost their jobs through no fault of their
own. Workers who quit or who are self-employed are generally not eligible for unemployment insurance and must
provide their own rainy-day funds to cover situations where no work is available. Unemployment insurance, for those
who are eligible, is paid to workers by governments from a fund of unemployment taxes collected from employers.
◊ Unemployment insurance provides cash stipends to unemployed workers who are actively seeking employment.
Like in United States, The unemployment initiative is a joint program between individual state governments and
the federal government. Each state has its own unemployment insurance program, but all states must follow
specific guidelines outlined by federal law, making unemployment benefits fairly ubiquitous across state lines. The
U.S. Department of Labor oversees the program and ensures compliance within each state.
◊ The unemployment insurance program offers up to 26 weeks of cash benefits a year for workers who meet specific
eligibility requirements. The weekly cash stipend is meant to replace half of an employee's normal wage, on
average. States pay for the weekly unemployment insurance using taxes levied on employers. Three states,
however, also require minimal employee contributions to the state unemployment fund.
◊ Those who do not find employment after the 26-week period may become eligible for an extended benefits
program. This program gives unemployed workers an additional 13 to 20 weeks of unemployment insurance but
only if the state's overall unemployment situation has deteriorated dramatically.

5. Main Objective of
Unemployment Insurance
The main objective of a Unemployment Insurance scheme should be kept as
simple and straightforward as possible: namely,
To provide temporary and partial income replacement to insured persons who lose
their jobs while they seek to obtain new employment

6. Historical development of the
different UI/EI schemes
 The adoption or revision of UI schemes was often influenced by regional or international crises.
 Combined experience with Unemployment Insurance (UI) or Employment Insurance (EI) schemes of nearly Ten
centuries, with the oldest scheme implemented in Denmark in 1907 and the newest in Viet Nam in 2009.
 The most experienced countries, generally in Europe and North America, have made considerable changes to their
schemes throughout the years to ensure sustainability of their UI/EI funds and to respond to the changing needs of
the economy and labour market challenges
 The United States and Canada respectively launched their UI schemes in 1935 and 1940, in response to the Great
Depression of the 1930s.
 The expansion of the Korean EI scheme in 1998 was partly a response to the Asian financial crisis of 1997.
 Thailand, having recovered from the Asian financial crisis around 2001, chose to launch its UI scheme in 2004.
 At different dates, China (1986), Mongolia (1997) and Viet Nam (2009) perceived the need for unemployment
protection to cope with inevitable labour market implications of moving from a socialist planned economy to a
market oriented economy.
“Employment Insurance”. This title emphasizes the coordination of unemployment
protection with employment promotion, through various labour market policies and programmes (Republic of Korea)

7. Insurance Perspective – Unemployment Insurance
 The primary objective of unemployment insurance is to achieve adequate
protection against the risk of job loss.
 In addition, a system financed in whole or in part through contributions can only
be sustainable if it is based on a sufficiently wide pooling of risks.
 These dual goals are met by extending coverage to most workers, thereby ensuring
that as many job losers as possible are in fact compensated, and second and
equally important, spreading costs over a large group of contributors.
 The required contributions could be prohibitively costly if they were only imposed
on workers who have a heavy risk of becoming unemployed, or, from a completely
different perspective, it would be futile to only protect those who have a low risk
of becoming unemployed.

8. ILO Convention 168 and 102
 Article 11 of Convention No. 168 (Protection Against Unemployment Convention, 1988 ) generally requires countries to
cover 85 per cent of all employees, including public employees unless this group is otherwise protected by national laws.
 That Convention also requires, under Article 6, that countries provide equal and non-discriminatory treatment to all
protected persons, including migrant workers.
 Convention No. 102 (Social Security (Minimum Standards) Convention, 1952) would only require that 50 per cent of
employees be covered.
 Under both Conventions, coverage is not required for self-employed individuals, owing to the practical difficulty of
assessing their work situation.
Convention No. 168 also refers to part-time workers, by requiring that they be protected unless their hours or
earnings are considered negligible. Article 25 thus states: “Each Member shall ensure that statutory social security
schemes which are based on occupational activity are adjusted to the occupational circumstances of part-time
workers, unless their hours of work or earnings can be considered, under prescribed conditions, as negligible.”
Those who work a near complete schedule should thus be covered, while those who work only a few hours per
week or per month might be excluded. In between those two situations, a reasonable cut-off point would have to
be determined.

9. International Experience – Snap Shot
• Virtually Many countries researched have a national mandatory insurance scheme which
provides cash benefits related to previous earnings, based on the social insurance principles in
accordance with ILO standards.
– The three fundamental principles/standards of any social security scheme considered
compatible with the ILO Constitution are
 state responsibility;
 collective financing and risk sharing by all members;
 and participatory management.
• In particular, the Social Security (Minimum Standards) Convention, 1952 (No. 102), states that
social security systems shall be financed collectively by means of insurance contributions or
taxation or both, in order that the risks are spread among the members of the community

10. Benefits Payment in Bahrain
 Bahrain issues two types of benefit payment:
i) compensation benefits to unemployed workers who involuntarily lost their job and are actively looking
for work; and
ii) aid benefits for first-time jobseekers who find themselves without work as they enter the labour market
In most cases, migrant workers are covered with the exception of Viet Nam. Article 6 of ILO Convention No. 168
stipulates that “Each Member shall ensure equality of treatment for all persons protected, without
discrimination on the basis of race, colour, sex, religion, political opinion, national extraction, nationality, ethnic
or social origin, disability or age”. Most of the mandatory schemes cover salaried or regular workers but have
some exceptions. Most of the countries cover public servants

11. Attractive Feature of Unemployment Benefits
Lump sum reemployment bonuses
 There are two countries which allow the payment of a lump sum when a person finds a permanent job. In
the Republic of Korea, a worker who finds a job before receiving all of their benefits receives 50 per cent of
the remaining benefits as a bonus. For example, if a worker was entitled to six months of benefits and
found a job after receiving two monthly payments, they would receive a lump sum equal to two months’
worth of benefits (half of the remaining entitlements). The escalating costs of this bonus forced a
tightening of rules in 2009, the effects of which have yet to be evaluated.
 Overall, the following conclusions are noteworthy, from a 2010 study: “Summarizing the literature on
benefit sanctions and re-employment bonuses, it is clear that financial incentives, irrespective whether they
are positive or negative, increase job finding rates. The effect of benefit sanctions seems to be larger than
the effect of reemployment bonuses.”15 In the same way as for many or most labour market policies, it
appears that careful design and targeting of such measures is essential

12. Contributions
 Two conditions apply for qualification to UI benefits:
 First, the previous insured employment and contributions needed to qualify; and
 second, the reason for contract termination, e.g. whether it was involuntary or voluntary.
(In the determination of the reason for contract termination, special mechanisms must be in place to properly
deal with forced or unavoidable resignations)
 Financing arrangements include employer contributions in all except Denmark, and they also include workers in all
 Governments contribute on a regular basis in four countries (Bahrain, Thailand, Viet Nam and, to a minor
extent, Chile),
and
 On an emergency basis in four more (Argentina, Germany, China and the United States)
Denmark has a voluntary scheme which covers more than 80 per cent of the working population.

13. Eligibility and Claim Requirements for
Unemployment Insurance
 A person who becomes unemployed must meet two requirements to be considered for
unemployment insurance. An unemployed individual has to meet state-mandated thresholds
for either wages earned or time worked in a stated base period. The state must also
determine that he is unemployed through no fault of his own. A person can file
unemployment insurance claims If these two requirements are fulfilled.
 An individual files his claim in the state in which he worked and subsequently lost his job. He
can file his claim by phone or over the Internet at a state's unemployment insurance agency. It
takes two to three weeks for processing and approval of a claim. After a person is approved,
he must either file weekly or bi-weekly claims that test his employment situation and whether
or not he remains eligible for payment. An unemployed worker cannot refuse work during a
week, and on each weekly or bi-weekly claim, he must report any income made, even
freelance work. Failure to do so can result in ineligibility.

14. Unemployment Insurance
Present
 In its present format, this policy doesn’t inspire much. Create a contingency
fund instead
 An Insurance cover for job loss does grab attention in current times. Layoffs
have become part of companies' cost cutting exercise in the economic
slowdown. And such a policy will make one feel more comfortable,
especially if one is saddled with loans.
 To tackle this uncertainty, ICICI Lombard has recently come with a policy in
which payment of equated monthly instalments (pays out 2% of the sum assured
for three months.)in the event of a layoff is present as a compulsory rider.
Called Secure Mind, this is a benefit policy, which means that the entire
insured amount is paid, if the insurer accepts the claim.

15.  Job loss is an additional feature loaded to this policy that covers three equated monthly
instalments for any one loan. But it is not as simple as it sounds. Here too there are pre-
conditions that need to be dealt with. The job loss has to occur due to retrenchment, layoffs
or for health reasons. For instance, job loss arising due to a company closing a division due
on account of poor financial health or an action of public authority leads to a firm's closure.
 However, this policy does not cover job loss if the employer asks the employee to resign or ask
to leave on account of poor performance. This is because the insurer considers such events as
controllable and Insurance is supposed to cover only unforeseeable risk.
 The policy covers persons between the age of 20 and 45 only. The premium and sum insured
depends on number of parameters. These include the loan amount, loan duration, policy
tenure and age of the insured. The premium increases with the increase in any of the
parameter.

16.  The sum Assured is determined on the basis of the outstanding loan. Example, a
35-year old has an outstanding loan of Rs 30 lakh, the sum insured will be Rs 30
lakh. The premium for a 5-year policy will be Rs 68,500. Here the person is
covered for the entire loan tenure but the maximum policy given out is five
years. The insured will need to renew it thereafter
 The company has sold 1.3 lakh policies in the 2008-2009 financial year (25,000
policies alone in the January 2009 to March 2009 quarter
 Most of the policy was sold by lenders along with their loans. Individual policies
purchased were around 50,000.
 Though ICICI Lombard does not have any competition in this segment, but Bajaj
Allianz had experimented with a similar cover in year 2009. However, it
discontinued the policy as the business was not attractive
 The main problem for buyers of this policy will be establishing the fact that they
have been retrenched and, not because of lack of performance.

17.  In the West, where this product originally comes from, insurers provide this
cover as part of employer liability. This is mainly to insure the employees
against job loss due to merger and acquisition. "Even in India, this product
makes more sense when a lender sells it with a loan,"
 Market experts are of the opinion that this saving the premium in an emergency
fund will be much better. "It makes more sense to invest the premium in a
contingency fund.”
 In other words, if One is looking for a critical illness policy, this products works
just fine as it would pay the entire amount if One fall ill. But if projected as a
policy that protects One during a job loss, it does not make sense.

18.  Private life insurer Bharti AXA General Insurance earlier filed an 'unemployment insurance’ product
that will cover the risk of being laid off. The company has filed the product with IRDAI (Insurance
Regulatory and Development Authority of India) and no traces of details available whether the
product as approved or not.
 The product usually covered general credit risk of a person during a loss of job. For example,
payment of equated monthly instalments of the person insured for some months.
 There is a waiting period of 30-90 days before One can claim for a job loss. The claim will not be
honoured if One lose his/her job before the start of the policy or if it is impending at start of the
policy. The term of these policies ranges between one and five years. But, a policyholder can claim
only once during the policy term. These policies cover proposed applicants in the age group of 20-
50 only.

19. Present – Quick Recap on the
Unemployment Insurance
 Even though we don’t have unemployment insurance in India, we have something very similar
known as ‘job loss’ cover. This can be taken along with loans such as a Home Loan.
 The Insurer will pay up to 3 months of the EMIs for the loan for which One took a job loss cover.
Just like many other policies, this will also have a waiting period of about 30 to 90 days.
 One can choose to take the policy for 1 to 5 years.
 However, most policies will not cover unemployment of self-employed individuals. It will also not
cover termination, suspension or retrenchment.
 Always read the exclusions and terms before One chooses a policy.
 Currently there is no private insurance company offering unemployment insurance although many
like Bharti AXA and ICICI Lombard had initiated plans in the past which did not attract consumer
sentiment as expected.
 Few Personal Accident Insurance and Life Insurance Products (as rider in it) covers the risks related
to Unemployment Like Disability Benefits being the Total Permanent Disability but it is equal to the
sum assured only.

20. Overview of Products launched by Insurers
relating to Unemployment Insurance
 With decreasing job security in the market, insurance companies have launched an unemployment protection cover aimed
at providing protection when one faces involuntary termination (provided if the firm employs at least 20 people).
Policy details (general)
 The coverage is effective for job loss that should happen for a reason that is involuntary like restructuring, shut down, poor
financial health, mergers and acquisitions or on medical grounds that makes it impossible for the employee to continue
working.
There are two types of coverages available under this policy:
 a) Loan or liability amount EMI coverage, which is payable on loss of job. It is paid for the remaining policy term from
the date of claim initiation.
b) Monthly income on loss of job for tenure of three/six/nine/twelve months. Monthly income is chosen by the
individual at policy inception and premium is charged accordingly.
 Typically, this insurance is being extensively tagged to loan products and the sum assured amount correlates to the
amount of liability (for instance, pending principal amount on a home loan or an education loan).
 The coverage age bracket varies with the insurer and is generally between 20 and 50 years with policy term varying from
one to five years. The cover is to be renewed upon expiry of the current policy term.
 The premium is set based on factors like age, sum insured, financials, job track record etc. The premium once paid would
be forfeited on policy expiration if there are no claims made. Also, the renewal premium would depend not only on the
above stated factors but also previous claims.

21. Exclusions
 Job loss due to voluntary resignation.
Job loss due to poor performance or non-conformance of rules and regulations.
Job loss due to involvement in illegal and unlawful activities like insider trading, money
laundering, disruptive events (terrorism, participation in riots, destruction to property,
kidnapping, cyber-crime) etc.
Some insurers have included time period clause to kick-start the payouts i.e. payouts
happen only if the policy holder is unemployed even after three months of job loss.
 In western nations, this product for risk of retrenchment is availed by the employer for its
existing employees to protect them in case of job loss due to uncontrollable
situation. Currently, in India, it is being sold as an individual product and the concept of
designing the unemployment insurance on the lines of the west is still in testing stages.

22. Challenges which may be faced in Building a
Standalone Unemployment Insurance Product
 Pricing of the Product
 Availability of accurate Past Unemployment Records to arrive at commensurate
pricing of the product
 Arriving at the exact need based benefits to be rolled out
 Better Understanding of Concept of Uncertainty with regards to Unemployment
Rate and Standard Underwriting of Unemployment Insurance Products
 Law of Large Numbers (Enough number of the insured of such schemes should be
brought under the ambit of Unemployment Insurance)
 Indemnifying the Exact Loss of Income and ascertaining the sustainability during
Unemployment Risks
 How to combat with forceful resignations and trauma of employees ?

23. What can be covered under the
Improved Product Design
 Dedicated Contribution (Dual or Tripartite )
 Creation of Contingency Fund
 Investment Patterns of such contributions by the Insurers
 Regulators Intervention and enhanced role in promoting it as Social Insurance
 Authority/Ownership of such contribution or funds
 Authorised Persons from the Insurers
 Cover Providing assistance in Higher Education if need arise so.
 Interest Holidays or Interest Subventions at Individual Level for Housing and Educational Loans
 Reskilling and effective training according to the skillset and employability
 Leaves are exhausted or written off. Corresponding amount can be contributed towards the
unemployment Insurance Fund – Dedicated authority

24.  Benefit of Health Insurance (For cases of Depression and Counselling)
(Linking Unemployment Insurance with Health Insurance Benefits)
 Default of Loans (House Loans, Educational Loans etc.,)
 Affecting the EMI Payments (How lenders can contribute if as an probable
possibility ?)
 Employment Exchange should gear up in providing the accurate statistics
 Skill Database for a Country to be developed, Every skill should be established with
Aadhar Number
 Technology will come to rescue when the numbers are Huge, Like how sophisticated
user friendly applications for such schemes can be developed

25.  Employee friendly company can prove their Social and Labour Obligations
 Claims Handling Mechanism should be in place
 Grievance Handling Mechanism should be in place
 Contract Wordings of the Policy should be understood by a common layman
 Linking Unemployment Insurance with Health Insurance Benefits
 Indexation of Premiums (Cost of Premiums based on Inflation)
 Insurance Department of State government can also take ownership and Nodal Agency should be in
Place
 In Capitalistic Model trade union are relevant, employee oriented and equitable in nature. Trade
union can help in creating awareness of such schemes of Insurance if launched.
 Instances of Trade unions taking cause of the employee who is not even a member of Trade Unions.

26. Unemployment Insurance as Social Insurance
launched by Government of India Offered
through PSU Insurers
One Such Scheme launched by Government of India in October 11, 2001
Note : Also to be noted the IRDAI Act 1999 (received Presidential Assent in January
2000, and deemed to have come into force with effect from 1st April 2001 which
passed to Regulate the Insurance Industry came in to force

27. What is Ashraya Bima Yojana?
Ashraya Bima Yojana was launched by the Indian government in 2001
and has been in effect since then. This policy offers cover for workers
against unemployment/ loss of work and offers them financial
security. A compensation of maximum 30% of the salary earned
annually will be paid out to the affected worker till he finds an
alternative work or for a period of one year, whichever is earliest.
The maximum amount paid out to the insured on a monthly basis
would be Rs. 3,000.

28. Who can apply for cover under the
Ashraya Bima Yojana?
This cover can be availed by companies for their
employees to protect them from any unforeseen
contingencies that may affect their job stability.
There are certain eligibility criteria set for
companies as well as employees and they can avail
this Insurance policy only upon fulfillment of the
same

29. Ashraya Bima Yojana
Applicability
 Cover is available for on-going companies only.
 The Company: - should paying its statutory dues regularly.
 Should be registered under Industrial Dispute Act or Factories, Shops and
Establishment Act, as applicable.
 Should be a non-BIFR company and its borrowings not termed as NPAs by their
lenders.
 Should not have been closed for a continuous period over 30 days during last 12
months from the date of proposal.
 Should not have any immediate plan to go for re-engineering and upgradation at the
time of proposing the cover.

30. Eligible Employees
 Employees should be contributing to EPF for at least 12 months at the time of
proposing the cover.
 Employees' salary should not be more than Rs.10000/- per month; (salary for
this purpose means Basic + D.A.

31. Requirements
 Audited financial results of the company for the last 3 years.
 Statutory Dues Compliance Certificate
 Certificate from the financial institutions in regard to repayment of loan, cash
and credit etc.

32. Claims Payment Procedure
√ The sustenance allowance is payable up to 12 months or until he/she secures
alternate employment whichever is earlier.
√ An undertaking from the affected employee and duly certificate by an authorized
official of the employer to be obtained to secure monthly payment from the
authorized banker
√ After obtaining claim form and other certificates as mentioned in the claim form and
ascertaining that a valid claim is payable under the policy, a banker near to the
affected unit shall be designated and authorized to pay the amounts to the affected
employees before the 7th of every month
√ Underwriters countersign the certificate issued by the insured/employer and send it
to the bank for transfer of sustenance allowance to the respective accounts of the
employees

33. Claims Process
 The allowance provided under this policy in the event of loss of job, will be paid for a
maximum period of 12 months only or until the worker gets employed elsewhere, whichever
comes first.
 The worker has to provide an undertaking in relation to his/her loss of employment and an
authorized official from the company has to provide a certificate to this effect. This is required
in order to get the monthly sustenance allowance from the Bank authorized under the policy.
 In case of a claim, you have to submit the duly filled claim form along with the certificates
mentioned in the form to the authorized Bank authorities and the Bank branch closest to the
worker unit affected will be authorized to pay the sustenance allowance every month, before
the 7th.
 The certificate issued by the employer or the insured will be then countersigned by the
Underwriters and this will then be sent to the concerned Bank for the provision of the
allowance specified under the scheme to the affected employees.

34. Company Eligibility Criteria
 In order to be eligible to avail the benefits of this policy, employees
must fulfill the following criteria:
 He/ she should actively contribute to the EPF scheme for a period
of minimum 12 months at the time of policy proposal.
 The salary earned by the employee should be less than Rs. 10,000
per month. This is calculated as the sum of Basic Salary earned and
the Dearness Allowance.

35. Documentation
 In order to avail a cover under the Ashraya Bima Yojana, the
following documents have to be submitted:
 The company’s audited financial reports of the last three years.
 The Statutory Dues Compliance Certificate
 Certificate from the lenders and other financial institutions
regarding the credit stability and fund availability of the company
such as loan repayment, credit outstanding, deposits, etc.

36. • The scheme launched was part of the 2001-02 Budget proposals on labour reforms.
• For temporary sustenance measures for retrenched employees the corporates bought the Ashrya bima yojana
launched by New India assurance, National Insurance Company, Oriental Insurance Company and United India
Insurance in June 2001
• The premium was initially capped at five per cent of the aggregate annual wages of all workers earning a monthly
income of less than Rs 10,000.
• In this policy the premium cover is borne by the company and from the employees a mere 5% of the annual wages
are deducted from all the workers earning below Rs. 10,000. This policy cover can be bought under the Industrial
Act or the Factory Act by the registered company.
• The premium quoted is on the higher side, but if more companies enter the scheme, there was a tendency of
premiums fall," Claimed General Insurers' (Public Sector) Association of India (Gipsa).
Gist and Quick Understanding of
Ashraya Bima Yojana

37.  This policy administers “No profit no loss” basis. It is understood that the insurers, who are being asked to
administer this policy on a no-profit-no-loss basis, have expressed strong reservations on having to handle
such a non-commercial activity. A section of the industry even sees this scheme as an inexpensive alternative
for corporates who should be extending VRS otherwise.
 Ministry officials said public sector non-life companies worked out the premium rates to be charged from
employers and employees. They confirmed the scheme would contain no subsidy element.
 Companies that have expressed desire to retrench their employees will not be eligible to apply for such a
cover. There will also be a waiting period of six months before the cover comes into effect
 In order to hasten the processing of this cover, the territories have been divided between the four companies
with New India looking after (West), Oriental Insurance (North), National Insurance (East) and United India
(South). The nearest banks to the company's site will be designated to pay the monthly sustenance allowance
to the retrenched workers.

38. Conclusion
 Experience from few countries shows that a combination of unemployment cash benefits and policies to
support re-employment is the most effective mechanism to protect the unemployed and their families
against poverty, while helping them to find employment quickly.
 All countries provide the usual employment services required for effective job search, such as counselling,
job fairs, assistance for writing curriculum vitae (CV), labour market information, job database, mobility
allowance, and so on.
 Also, most of the schemes offer different programmes to encourage the insured unemployed to upgrade
their skills, undertake training, such as vocational training allowances as well as benefit extensions if the
training lasts beyond the end of the UI benefits
 Insurance is always a looked upon as a necessary but costly need by some, while some consider it to be
unwilling expense and ignorance.
 Once a few products are available for Unemployment Insurance, we will know about the cost of such
insurance with respect to the benefits it will offer.
 Also keeping in mind that Indian Insurance market has its own dynamics - new and fancy products at the
time of launch always command high costs and lot of conditions are hidden and unclear.

39. References
 http://www.investopedia.com/terms/u/unemployment-insurance.asp
 Comparative review of unemployment and employment insurance
experiences in Asia and worldwide Report 2006-2015
 International Labour Organization (ILO) Conventions
 http://www.newindia.co.in/social Insurance
 http://www.business-standard.com/article/pf/unemployment-insurance-
109041900006_1.html
 https://www.kotakmoneywatch.com/index.php/article/717-what-is-unemployment-insurance
 http://www.indiainfoline.com/article/news-corporate/unemployment-insurance-product-to-
be-launched-soon-113110700470_1.html

40. Thank You
SOCIAL SECURITY WILL BE ONE of
THE COUNTRY’S GREATEST
SUCCESS