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1. Social Insurance And Private Insurance
The notion of insurance is widespread and clear: insurance is a way of providing for the consequences of negative future events (risks or contingencies) in a collective manner with a special technique of ﬁnancing. The distinction between private and social insurance is less clear: social insurance is organized by public authorities through legislation, and is usually compulsory, while private insurance is usually voluntary. Social insurance seeks to provide coverage against the consequences of risks like sickness, industrial accident, invalidity, old age, and unemployment for a large part of the population of a nation. To attain these goals, a compulsory form of insurance is considered a necessity. Bismarck’s social insurance in Germany is in some ways the prototype of social insurance. However, his social insurance covered only workers rather than the general population (Koehler and Zacher 1982).
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The diﬀerence between social and private insurance can be found in the goals, the techniques of protection, the legal form of the insurance bodies as private or public organizations, and the way of ﬁnancing the beneﬁts. But there is no clear distinction between them. Sometimes, the goals of social insurance are attained by compulsory private insurance and, in some countries, the bodies responsible for social insurance are private bodies.
One of the main distinctions between social and private insurance concerns the ways in which risk is calculated and ﬁnanced. In the ﬁeld of private insurance, the basis of calculation of the premiums is the risk. In the ﬁeld of social insurance, the risk is less important, and social aims (such as health and welfare) prevail against the economic criterions.
Private insurance, moreover, distributes the burden of an individual risk across a group. Social insurance has the same eﬀects, but it also eﬀects income redistribution between those who are healthy and sick, richer and poorer, younger and older people, or households without and with family members.
2. Two Characteristic Items Of Social Insurance: Financing And Organization
Thus, two characteristic items of social insurance remain, which allow us to distinguish between social insurance and other techniques of social protection. Those interlinked items are the ways of ﬁnancing social insurance and the organization of social insurance.
Social insurance beneﬁts were originally ﬁnanced by contributions levied on earnings and divided between employee and employer, thus expressing the shared responsibility between employer and employee with regard to work-related social risks. State subsidies completed the ﬁnancing. However, this scheme changed over time. Some countries introduced increasing state subsidies, while others changed the proportion of the contributions burden payable by employer and employee. In Germany, for example, the employees had to relinquish a public holiday to compensate employers for the new ﬁnancial burden created by the introduction of long-term care insurance. Currently, there are ongoing discussions about changing the ﬁnancial basis from the earnings of employees to the surplus value of enterprises.
Originally, social insurance bodies were special bodies that were not directly integrated in the administrative organization of a state. Sometimes, they are co-administered by representatives of employers and employees. This kind of self-government is more prevalent in countries where social insurance bodies are private organizations. In countries with special public authorities for social insurance, but without self-governing or autonomous elements of administration, the ideal image of social insurance is left behind.
3. Social Insurance And Social Security
The concept of social insurance should not be confused with the concept of social security (cf. UN Declaration of Human Rights, art. 22), which is an international goal of social policy. Social insurance is considered a special, nevertheless widespread technique of social protection. It combines the scope and character of a compulsory insurance on the one hand, and the ﬁnancing of the beneﬁts by obligatory contributions on the other.
From the perspective of international law, social insurance does not entail special legal problems. Nevertheless, international law scholars have taken a special interest in social insurance as a mechanism of social protection. Thus, many international treaties and other international or regional instruments, especially involving Europe, address social insurance.
In the ﬁeld of social security, international law has two main dimensions: (1) coordinating diﬀerent national social security schemes to guarantee freedom of movement, and (2) deﬁning social standards and aims (e.g., minimum standards, standards to attain, principles).
The coordination task was originally primarily due to the migration of workers, while the standard deﬁning task began with the treaty of Versailles, which can be considered the basis of the development of an international social policy (Zacher 1976).
4. Fulﬁllment Of International Requirements (International Standards Of Social Insurance)
Two kinds of requirements prevail internationally: attainment of minimum standards and achievement of higher levels than a given minimum.
4.1 Minimum Standards
The best known and most basic international instrument to set minimum standards of social security is Convention 102 of the International Labor Organization (ILO) (1952). This convention, ratiﬁed by 40 states, contains minimum standards regarding medical care and beneﬁts in the case of sickness, unemployment, old age, employment injury, maternity, in-validity, and for survivors. This convention applies to insurance schemes as well as other schemes of protection.
4.2 Higher Levels Of Social Standards
The European Social Charter (1961) of the Council of Europe, a regional instrument for the European countries, serves as a social standard instrument for the European Union nations. It is now ratiﬁed by 24 states. In the frame of the Council of Europe, other social security conventions (e.g., Code of Social Security) also aim at higher social standards.
5. Social Insurance Beneﬁts
5.1 Range Of Beneﬁts
The range of risks covered by social insurance schemes, labeled as ‘traditional’ social risks or contingencies, is described in ILO Convention 102 on minimal standards of social security (see Sect. 4.1) (von Maydell and Hohnerlein 1994). As new social risks develop, it is not clear whether protection will be provided by social insurance schemes or by other means (van Langendonck 1997, Pieters 1998).
Social insurance bodies do not provide beneﬁts unique to social insurance. Other bodies of social protection and even private insurance bodies provide comparable or identical beneﬁts. However, there are typical links between social insurance and the beneﬁt provided, especially for those cash beneﬁts designed to replace former earnings, e.g., sickness beneﬁts or oldage pensions. As the insured person pays contributions based on his/her earnings (usually a certain percentage of the income), the beneﬁt replacing the earnings is calculated as a function of the former earnings and is not provided as a ﬂat-rate sum.
Whereas private insurance is almost always paid in cash, social insurance beneﬁts can be either beneﬁts in kind or in cash.
5.2 Guarantee Of Beneﬁts
In some countries, entitlement and even qualifying periods for social insurance entitlement are protected by the constitution. In the German constitutional doctrine, contributions to the old-age pension scheme are protected by the constitution as property. The new Ukrainian Constitution gives another kind of guarantee which may apply to social insurance beneﬁts: it requires that the content and scope of existing rights and freedoms shall not be diminished in the adoption of new laws or in the amendment of laws that are in force.
5.3 Public Private Mix Of Beneﬁts
Initially, social insurance beneﬁts were the only way of providing a subsistence base in the case of risk occurrence. Nowadays, social insurance beneﬁts are increasingly complemented by other means of protection. Mainly in the ﬁeld of old-age pensions, the interplay of public, occupational, and private protection increasingly serves as a current mode of protection (International Bank for Reconstruction and Development 1994).
6. Future Developments In The Field Of Social Insurance
To reach the goals of social security the technique of social insurance was one of the most important tools in the evolution of the welfare states. Social insurance, in the sense of Bismarck’s social insurance, has undergone major changes. The initial role of social insurance, the social protection of workers, has lost its importance as the personal scope of social insurance has widened. Other forms of social protection, especially state-ﬁnanced social programs for families, unemployed people, or for persons in need are increasingly prevalent.
Today, there is no unique mode of using social insurance to address social problems. Social insurance schemes rely mainly on ﬁnancing by contributions and are thus, as regards their ﬁnancing basis, dependent on the evolution of earnings. This reliance is considered a critical factor in the future ﬁnancial stability of social insurance schemes and is broadly under discussion (Pieters 1999b).
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