UNDERSTANDING FACTORS AFFECTING CONTRIBUTION RATE OF SOCIAL INSURANCE

Authors: Mohd Zaki Awang Chek & Isma Liana Ismail

ABSTRACT

The main objective of this study is to understand risk factors affecting the contribution rate of social insurance. Social insurance is designed to provide protection against heterogeneous risks. In Malaysia, Social Security Organisation (SOCSO) is mandated to administer and enforce the Employee Social Security Act 1969 and Employee Social Security General Regulations 1971. Basically, social insurance programs differ from private insurance in several ways. Firstly, the contributions are normally compulsory and may be made by the employer and employee.  Benefits are also not as strictly tied to contributions as is the case with private insurance. For example, to make the programs serve certain social purposes, some contributors are included among the beneficiaries even though they may not have contributed for the required period. Next, benefits may be increased in response to the rising cost of living, which reduces the amount between contributions and benefits. Therefore, this study identified risk factors affecting the contribution rate as such mortality as rate, age, salary, and interest rate. These risk factors are important for policymakers to provide sufficient future claims and comprehensive benefits to the contributors inclusively.

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