Social insurance

Some types of insurance cannot be operated on a private basis, e.g. unemployment insurance and health insurance, due to the problem of underwriting. Some people will not be able to have access to insurance due to their higher risk factors, e.g. certain types of occupation or poor health.

These insurances have to be operated by the state (through social insurance) and is made compulsory for every eligible person. There is no need for underwriting, as everybody is covered for the standard benefits,which are  usually provided at a basic level. The insured people pay a premium that meet a major portion of the cost and any deficit is usually funded through tax revenue.

There are significant savings in operating a social insurance scheme, as there is no marketing and underwriting expenses. There is lower administrative expenses. The saving in cost can amount to 30% to 40% of the premium that would be charged by a private insurer for a similar set of benefits.

It is possible for a state scheme to be abused but this can be controlled - as it would be a crime to cheat the state. A state scheme may be operated inefficiently, but this can be properly managed.

It is better for the basic needs of the people to be provided by social insurance and for the private sector to provide additional benefits on top of the state benefits.

Tan Kin Lian