Insurance distortions

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Insurance distortions

Insurance rates will shoot up next year as coverage for workers’ compensation and unemployment will be combined with the national pension and health schemes. The premiums will rise because they will be assessed from Jan. 1 on a broader basis to include corporate subsidies for medical care and tuition on top of the usual salary and bonuses.

In theory, a worker at Hyundai Heavy Industries, will see 330,000 won ($267) taken out for insurance coverage from his annual payroll from next year compared with 230,000 won now, a hefty 44 percent hike. This is a heavy blow to the 17 million households depending solely on salaries. The new move renders an equally devastating blow to employers who entirely subsidize their employees’ health and safety compensation and most of their unemployment coverage. Hyundai Motor, for instance, will see premiums for safety compensations and unemployment insurance jump by 21.1 billion won to 77.9 billion next year. Samsung Heavy Industries and Kia Motors will also have to pay another 11.9 billion won and 18.1 billion, respectively. They are hedging against the potential risks of industrial accidents and job losses. Still safety insurance premium is already at 1.8 percent, among the highest levels in the world, even beating that in the United States. The corporate burden for insuring against occupational hazards will total 5,047.7 billion won this year, more than triple the 1,451.4 trillion won in 1998. We cannot blame companies who complain that higher insurance payments eats into their balance sheet and erodes competitiveness.

The hike in insurance rates following the consolidation of the four major insurance schemes is incomprehensible. If the policies are combined, the cost savings should result in lower rates, not higher. We cannot but suspect that the government may be seeking to fatten the insurance coffers by taking easy money from the workers’ pockets. Fortunately, the Regulatory Reform Committee capped increases in premiums for the two state-run insurance programs at 15 percent over the three years.

The government also should consider overhauling the payment structure for worker’s safety and health compensation policies. The occurrence of occupational accidents varies widely among different industries. Yet all workplaces pay the same compensation rates. Some 80 percent of accidents take place in small workplaces, yet it is the bigger ones that shoulder most of the insurance premiums. Moreover, the beneficiary guidelines and subsidies for disability are much too lenient, making the policy easy prey for those who want to exploit the system. We need stricter guidelines and assessments on occupational hazards in individual workplaces.
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