- 1 BLOCK – 1 HEALTH INSURANCE, MARKET FAILURE AND RISKS
- 2 INSURANCE IN INDIA
- 2.1 EVOLUTION OF INSURANCE
- 2.2 CONCEPT OF INSURANCE
- 2.3 ENTRY OF PRIVATE PLAYERS
- 2.4 INSURANCE REGULATORY DEVELOPMENT AUTHORITY (IRDA)
- 2.5 SOCIAL SECURITY SYSTEM
BLOCK – 1 HEALTH INSURANCE, MARKET FAILURE AND RISKS
The health care need of the country is on the rise. On the other hand cost of health care is enormous. Financing health care of the community varies from country to country. In India financing is being done by various mode like government budgeting and allocations, out of pocket payment, social insurances, employer based schemes and voluntary health insurances. The invent of third party payment led to various malpractices like unnecessary admissions, investigations, double billing and even creating bills without even admitting the patients or wrong patients etc The inception of a regulatory authority for insurance business in India led the way for health insurance both private and public to grow which regulates the industry both from the insurer side as well as the provider and the customer (patients). The Health Insurance industry is gaining acceptance by the public, the insurer and being utilized by the service provider, but getting reformed to create a win-win situation to all stakeholders.
INSURANCE IN INDIA
The Insurance sector in India governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalization) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.
EVOLUTION OF INSURANCE
Insurance in the Colonial Era. Life insurance in the modern form was first set up in India through a British company called the Oriental Life Insurance Company in 1818 followed by the Bombay Assurance Company in 1823 and the Madras Equitable Life Insurance Society in 1829. All of these companies operated in India but did not insure the lives of Indians. They were insuring the lives of Europeans living in India. Some of the companies that started later did provide insurance for Indians. But, they were treated as “substandard”. Substandard in insurance parlance refers to lives with physical disability. In this case, the common adjustment made was a “rating-up” of five to seven years to normal British life in India. Therefore, Indian lives had to pay an ad hoc extra premium of 20% or more. This was a common practice of the European companies at the time whether they were operating in Asia or Latin America. The first company to sell policies to Indians with “fair value” was the Bombay Mutual Life Assurance Society starting in 1871. The first general insurance company, Triton Insurance Company Ltd., was established in 1850. It was owned and operated by the British. The first indigenous general insurance company was the Indian Mercantile Insurance Company Limited set up in Bombay in 1907. Insurance business was conducted in India without any specific regulation for the insurance business. They were subject to Indian Companies Act (1866). After the start of the “Be Indian Buy Indian Movement” (called Swadeshi Movement) in 1905, indigenous enterprises sprang up in many industries. Not surprisingly, the Movement also touched the insurance industry leading to the formation of dozens of life insurance companies along with provident fund companies (provident fund companies are pension funds). In 1912, two sets of legislation were passed: the Indian Life Assurance Companies Act and the Provident Insurance Societies Act. There are several striking features of these legislations. First, they were the first legislations in India that particularly targeted the insurance sector. Second, they left general insurance business out of it. The government did not feel the necessity to regulate general insurance. Third, they restricted activities of the Indian insurers but not the foreign insurers even though the model used was the British Act of 1909. Comprehensive insurance legislation covering both life and non-life business did not materialize for the next twenty-six years. During the first phase of these years, Great Britain entered World War I. This event disrupted all legislative initiatives. Later, Indians demanded freedom from the British. As a concession, India was granted “home rule” through the Government of India Act of 1935. It provided for Legislative Assemblies for provincial governments as well as for the central government. But supreme authority of promulgated laws still stayed with the British Crown. The only significant legislative change before the Insurance Act of 1938 was Act XX of 1928. It enabled the Government of India to collect information of (1) Indian insurance companies operating in India, (2) Foreign insurance companies operating in India and (3) Indian insurance companies operating in foreign countries. The last two elements were missing from the 1912 Insurance Act. Information thus collected allows us to compare the average size face value of Indian insurance companies against their foreign counterparts. In 1928, the average policy value of an Indian company was 619 US dollars against 1,150 US dollars for foreign companies The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta.
CONCEPT OF INSURANCE
Insurance is also referred to as Assurance and in the early part of the 17th century the term Ensurance (French) was quite prevalent. The term Assurance is basically the earlier term and was used alike for both life and general insurance. The term insurance was initially used in 1635 in connection with Fire insurance and was quickly adopted as extensively as Assurance. In 1826, it was proposed that the term insurance be used for general insurance and the term assurance restricted for life insurance. The origin of practice of insurance is probably lost forever in the mists of antiquity. References to practices similar to insurance are found in the ancient Indian texts of Rigveda. Rigveda refers to the concept of "Yogakshema" - loosely meaning 'the well being, prosperity and security of people'. Archaeological excavation at the site of Aryan civilization has yielded evidence of a practice similar to insurance, insuring loss of profits in industry. The codes of Hammurabi and of Manu had recognized the importance and advisability of some practice akin to provision for sharing of future losses or Yogakshema. The joint family system, peculiar to India was a method of social insurance of every member of the family on his life. In India, insurance has a deep-rooted history. It finds mention in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular .1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies.
In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.
The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then. In 1972 with the passing of the General Insurance Business (Nationalization) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973.
This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests. In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002. Today there are 14 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 14 life insurance companies operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-20% per annum. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.
Some of the important milestones in the life insurance business in India are: 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are: 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business. 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices. 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies’ viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
ENTRY OF PRIVATE PLAYERS
Until 1991 LIC and GIC played a significant role in the development of insurance market. In 1991 the government of India introduced various reforms in the financial sector which affected the insurance sector. Consequently in 1993 the government of India set up an eight member committee chaired by Dr.R.N.Malhotra governor of RBI to review the structure of regulations and supervision of the insurance sector and to make recommendations for strengthening and modernizing the regulatory system. The committee submitted its reports to the government of India in Jan 1994. Two main recommendations are one permitting the private players into insurance business and establishment of insurance regulatory authority. Based on the above recommendation Indian Parliament passed the Insurance Regulatory and Development Act 1999 on Dec 2 1999 with the aim ‘to provide for the establishment of an authority, to protect the interest of the policy holders, to regulate, promote and ensure orderly growth of the insurance industry and to amend the Insurance Act 1938, the Life Insurance Act 1956 and The General Insurance business Act 1972.
INSURANCE REGULATORY DEVELOPMENT AUTHORITY (IRDA)
The IRD Act has established The Insurance Regulatory and Development Authority (IRDA) as a statutory to regulate and promote the insurance industry in India and to protect the interests of insurance holders. It also carried out a series of amendment to the Act of 1938 and conferred the powers of the controller of insurance on the IRDA.
The members of IRDA are appointed by the Central Government from amongst persons of the ability, integrity and who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration, etc., The authority consist of a chair person, not more than five full time members and not more than four part time members. === Powers, Duties and Functions of the authority=== The authority regulates, promotes and ensures the orderly growth of the insurance and reinsurance business in India. Powers are a. Prescribe regulations on the investments of funds by insurance companies. b. Regulates maintenance of the margin of solvency. c. Adjudication of disputes between insurers and intermediaries. d. Specify the percentage of premium of income of the insurer to finance scheme. e. Specify the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector. f. Supervise the Tariff Advisory Committee.
Tariff Advisory Committee (TAC)
TAC is a body which controls and regulates the rates, advantages, terms and conditions offered by insurers in the insurance business. The authority has the following functions a. Request any insurer to supply information or statements necessary for discharge of its functions. b. Collect annual payment of fees to the advisory committee to be paid by the insurer.
The ombudsmen are appointed in accordance with the Redressal of Public Grievances Rules 1998 to resolve all complaints relating to settlement of claims on the part of insurance companies in a cost effective, efficient and effective manner.
Any person who has a grievance against an insurer may make a complained to an ombudsman within his jurisdiction. However such person should have made a representation to the insurer and the insurer had rejected the complaint or not replied to it. The complained should be made not later than a year from the date of rejection by the insurer and should not be any other proceedings pending in any other court, Consumer Forum. The ombudsmen are also empowered to receive and consider any partial or total repudiation of claims by an insurer, any dispute in regard to premium paid in terms of the policy, any dispute on the legal construction of the policies, delay ion settlement of claims and non issue of any insurance document to customers after receipt of premium.
The Ombudsmen as a counselor and mediator and make recommendations to both parties in the event that the complaint is settled by agreement between both the parties. However the complained is not settled by agreement the Ombudsman may pass an award of compensation within three months of a complaint, which shall not be in excess of which is necessary to cover the loss suffered by the complainant as a direct consequence of the insured peril.
Regulations and Registration with IRDA
Any insurance company seeking to carry out the business on insurance in India is required to obtain a certificate of registration from the IRDA prior to commencement of business. The regulations are as follows
i. General Registration Requirement The applicant should be a company registered under the provisions of Indian Companies Act 1956. The aggregate equity participation of a foreign company in the applicant company cannot exceed 26% of the paid up capital of the insurance company. The applicant can carry out any one of insurance business either Life Insurance, General Insurance, Reinsurance or Health Insurance. Name of the applicant needs to contain the words “Insurance Company” or “Assurance Company”.
ii. Capital Structure Requirement A minimum paid up equity capital of rupees 1 billion in case of Life Insurance or General Insurance. A minimum paid up equity capital of rupees 2 billion in case of Reinsurance. A minimum paid up equity capital of rupees 1 billion in case of Health Insurance.
A Promoter of the company is not permitted to hold at any time more than 26% of the paid up capital in any Indian insurance company however an interim measure has been permitted where in the promoter dived in a phased manner over a period of 10 years from the date of commencement of business, the share capital held by them in excess of 26%. iii. Procedures of obtaining a certificate of registration. The applicant is required to make a separate requisition for registration in each class of business. The IRDS may accept the requisition being satisfied of the bonafides of the applicant, the completeness of the application and that the applicant will carry out all functions in respect of the insurance if business including management investment etc., In the event where the requirements are not met, authority after giving the applicant a reasonable opportunity of being heard, reject the requisition. However the applicant may apply within 30 days of rejection for reconsideration or a fresh application can be made after two years from the date of rejection with the new set of promoters and for a different insurance business.
Once the IRDA accepts the requisition for registration shall supply the application for registration. The applicant applies with the relevant document evidencing deposit, capital and other requirement in the prescribed form for grant of registration. If the authority thinks that the assured rates, advantages, terms and conditions are not workable or sound, he may submit to an actuary appointed by the insurer and order the insurer to make such modifications as reported by the actuary. The authority after considering the matters like capital structure, record of performance of each promoters and directors and planned infrastructure of the company may grant the certificate of registration to run the business. The applicant may commence the insurance business within 12 months from the date of registration. In the event of rejection the applicant may appeal to the Central Government within 30 days from the date of communication of such rejection for reconsideration. The Central Government’s decision is final.
iv. Renewal of Registration. The renewal of registration should be done before 31st of December every year with a fees of Rs.50, 000 for each class are 1/5th of 1% of total gross premium collected by the insurer during the financial year preceding the year of renewal. v. Suspension of Registration. The registration can be suspended by the Authority in the following cases Conducts its business in a manner prejudicial to the interests of the policy holders. Fails to furnish any information as required by the Authority relating to its business. Does not submit periodical returns as required by the Authority. Does not co-operate in any inquiry conducted by the Authority. Indulges in manipulating in the insurance business. Fails to make investment in the infrastructure or social sector as specified under the Insurance Act.
vi. Cancellation of Registration. The Authority in case of repeated defaults of the ground for suspension may impose a penalty in the form of cancellation of certificate in the following situations If the insurer fails to comply with the provisions relating to deposits. If the insurer fails to comply with the provisions relating to the excess of the value of his assets over the amount of his liabilities. If the insurer is in liquidation or is adjudged an insolvent. If the business has been transferred to the other person or merged with any other insurer. If the whole of the deposit made in respect of the insurance business has been returned to the insurer. If the contract is cancelled or suspended for a period of 6 months. If the insurer defaults in complying with, or acts in contravention of, any requirement of the Insurance Act. If the company has not paid any claim after final judgment in regular course of law for three months. If the insurer carries out any business other than the prescribed business. If the insurer defaults in complying with any direction issued or order made by the Authority under the IRDA Act 1999. If the insurer defaults in complying with or acts in contravention of any requirement of the Companies Act, LIC Act, GIC Act or Foreign Exchange Management Act 2000. If the Central Government so directs. The order of cancellation shall take effect on the date of which notice of the order of cancellation is served on the insurer but all rights and liabilities in respect of contracts of insurance entered into by him before the cancellation takes effect shall continued. The Authority may, after expiry of six months from the date on which the cancellation order takes effect apply to the court for an order to wind up the insurance company, unless the registration has been reviewed or an application for winding up has already been presented to the court.
vii. Revival of Registration. The Authority has a discretion where the registration of an insurer has been cancelled to revive the registration if the insurer within six months Complies with the provisions as to excess of the value of his assets over the amount of his liabilities. Makes a deposit. Has his standing contract restored. Has the application accepted? Satisfy the authority and no claim upon him remains and paid. Ceased carry on any business other than any business. Complies with requirements of Insurance Act or the IRDA Act or any rule or regulations or any order for direction issued under this Acts.
SOCIAL SECURITY SYSTEM
Social security is a human right as per International Labor Organization (ILO) which defines Social security as “the protection which society provides for its members through a series of public measures against the economic and social distress that otherwise would be caused by the stoppage or substantial reduction of earnings resulting from sickness, maternity, employment injury, invalidity and death; the provision of medical care and the provision of subsidies for families with children”
Social security as a human right is part of International Labor Organization from a global legal perspective. Article 22 of A Universal Declaration of Human Rights states “Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international cooperation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality”
Historically people have looked to their families, clans, tribes, communities, religious groups and authorities – lords, chiefs and kings – to meet their needs for social security. But the processes of industrialization and urbanization that have swept the world over the past two hundred years have profoundly affected social security arrangements everywhere. The origins of the modern system of social security go back to the late nineteenth century in Europe but it was only in the three decades following the Second World War that it developed its characteristic features. This system, which is prevalent in the industrial market economies, is referred to here as the classical model of social security.
Evolution of Social Security System in Industrialised Countries
Before state-sponsored social insurance schemes were established in the late nineteenth century, social welfare was provided mainly by the family, the church authorities and local communities. In most countries the state assumed a residual responsibility for the relief of orphans, widows and the disabled – the deserving poor, as they were called. The British Poor Law system exemplified this approach to social security. Dating back to the fourteenth century, the Poor Law went through a series of changes over a period of five hundred years, culminating in the 1834 Reform of the Poor Laws (Quigley, 1999). Under the 1834 Act relief for the poor was financed from a compulsory tax on property-owners. The able-bodied poor were expected to work and were not entitled to benefits under the scheme. These benefits, in terms of food and shelter were extremely meager; the beneficiaries were stigmatized and subjected to harsh treatment. Those without possessions or means of support were placed in workhouses where their basic needs were met in return for compulsory work. Dating back to Roman times, the Friendly Societies found a new role during the early stages of industrialization in the United Kingdom. A group of workers would come together to form a mutual assistance association. In return for regular contributions to the society, members would receive help during sickness, old age and unemployment. The societies also served as savings and credit agencies. They sprang up all over the villages and towns in UK. In the late 19th century, there were nearly 27,000 registered Friendly Societies. By 1940, they had a membership of around 14 million people. They were recognized by the government, which legislated for their registration and auditing. Except for the Soviet Union, the socialist regimes in Europe lasted less than five decades. Prior to the communist take-over in Eastern and Central Europe, the social security systems in these countries resembled those of Western European countries. They were based on the concept of social insurance, but coverage was incomplete and fragmented into different occupational groups. After the communist revolution, these countries developed a distinctive system of social security characterized by universality, equality and comprehensiveness. In terms of the typology employed above, these systems were closer to those described as social democratic. But in some respects they were even more universal and egalitarian. They were financed by state and enterprise revenues. Price subsidies and the provision of benefits in kind, especially through enterprises, played an important role in social security.
Social security systems in developing countries
The social security systems in developing countries are more diverse than in the industrial countries, reflecting greater differences in historical background and economic, social and political structures. Prior to the introduction of modern social security systems, people relied upon their families, communities, religious authorities, employers and moneylenders to help them in an emergency. The majority of people had some independent means of production, which provided a measure of livelihood security. The modern systems of social security were introduced by colonial authorities in most of Asia, Africa and the Caribbean. Welfare provisions were extended in the first instance to civil servants and employees of large enterprises. The benefits included health care, maternity leave, disability allowances and pensions Most of the systems developed in these countries shared certain characteristics – the contingencies covered were usually limited to injury, sickness, maternity and pensions; there were differential systems for different occupations and categories of workers, a multiplicity of institutions and most important, limited coverage of the population. Unemployment benefits, family allowances and social assistance existed in relatively few countries or had extremely limited coverage. In general, there was a certain correlation between the development of the national social security system and the degree of economic progress.
Social security in India
India has a complex social security system. It can be broadly divided into the following five components. 1.The Employees Provident Fund Organization (EPFO) schemes 2.Civil service schemes of the Central and State Governments 3.Public Sector Enterprises 4.Voluntary 5.Public Assistance and other schemes for the life time poor at the Centre and in the States
The Constitution of India addresses the issue of related to social security are addressed under List III (7th schedule of the constitution). Indian Social Security System compresses of seven components. i.Employee Organization schemes. ii.Civil Service Scheme. iii.Public Sector Enterprise Scheme iv.Pension Scheme v.Voluntary Tax Advance Scheme vi.Scheme for un organized sector vii.Micro Pension The principal social security laws enacted in India are the following: (i) The Employees’ State Insurance Act, 1948 (ESI Act) which covers factories and establishments with 10 or more employees and provides for comprehensive medical care to the employees and their families as well as cash benefits during sickness and maternity and monthly payments in case of death or disablement. (ii) The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952 (EPF & MP Act) which applies to specific scheduled factories and establishments employing 20 or more employees and ensures terminal benefits to provident fund, superannuation pension, and family pension in case of death during service. Separate laws exist for similar benefits for the workers in the coalmines and tea plantations. (iii) The Workmen’s Compensation Act, 1923 (WC Act), which requires payment of compensation to the workman or his family in cases of employment related injuries resulting in death or disability. (iv) The Maternity Benefit Act, 1961 (M.B. Act), which provides for 12 weeks wages during maternity as well as paid leave in certain other related contingencies. (v) The Payment of Gratuity Act, 1972 (P.G. Act),which provides 15 days wages for each year of service to employees who have worked for five years or more in establishments having a minimum of 10 workers. Separate Provident fund legislation exists for workers employed in Coal Mines and Tea Plantations in the State of Assam and for seamen. Varishtha Pension Bima Yojana (VPBY) This scheme proposed in the 2003-04 budget is to be administered by the Life Insurance Corporation of India (LIC). Its main features are summarized below:
- Under VPBY, any citizen above 55 years of age, could pay a lump-sum, and get a monthly return in the form of a pension for life. The minimum and maximum pensions are pegged at Rs.250 and Rs. 2000 per month respectively. These amounts are not indexed to inflation.
- There is a guaranteed return of 9 percent per annum for this scheme.
- The difference between the actual yield earned by the LIC under this scheme and the 9 percent will be made up by the central government.
- The subsidy therefore is explicit. However, it would have been better to have pegged the guaranteed rate at a small premium to the market rate, rather than at an absolute level.
The Employees Provident Fund Organization (EPFO) schemes
The EPFO was set up in 1952 and its schemes are designed for the private sector workers in organizations with more than 20 employees in 177 categories of industries. The EPFO is an unusual national provident fund because it administers both a defined contribution (DC) scheme called Employees’ Provident Fund (EPF), and a defined benefit (DB) pension scheme called Employees’ Pensions Scheme (EPS). The EPFO is also unusual in that it not only administers the schemes, but also decides which organizations can be exempted from the EPF scheme, and then regulates and supervises the exempted establishments, generally fairly large companies. This puts EPFO in a conflict of interest situation. It is therefore essential that its role as regulator should be separated from its role as a service-provider for the various schemes. The EPFO also administers a life-insurance scheme called Employees’ Deposit Linked Insurance (EDLI) scheme. From the social protection viewpoint, we can summarize social health insurance as the optimal and sustainable mechanism to enable: • affordable, fair and progressive contributions by households and other partners; • optimal pooling levels to reduce risks and foster solidarity among different populations (young and old, low and high income, urban and rural); • increased efficiency and quality assurance in the purchase of health care; • relationships between the social health insurance scheme, providers and members that discourage moral hazard and abuse and promote rational use of health care; • improvement in the delivery of health care through increased financial resources and more appropriate allocation of these resources; • provision of health care with greater consideration for patient preferences and increased satisfaction among health professionals; and • a significant step in the extension of social security benefits for the population which enriches the concept of social protection while improving health and productivity and reducing poverty due to ill-health.
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Geethasn 10:35, 31 July 2010 (UTC)