This article explains that states enforce social insurance schemes to cover individuals when they are unable to insure themselves against risk, and that these schemes serve to ensure economic equity and promote social stability.
Everyone lives with the inevitable possibility of risk, so individuals try to insure themselves against it, and the market captures this and provides the right products. Life insurance, cancer insurance, and other insurance products are examples of this. However, private insurance products, which are voluntarily purchased by individuals, are not the only way for individuals to deal with risk.
Individuals must allocate their income appropriately between consumption for current needs and savings for future needs. However, humans have a natural tendency to overestimate current needs rather than future needs. We are also irrational beings who overestimate the probability of good fortune and underestimate the probability of bad fortune, which leads to individuals who spend most of their income on current needs rather than saving for risk. When they face risks, they are unprepared and collapse, which becomes a social problem. That’s why the state forces people to insure against typical social risks. The system is social insurance. These are compulsory insurance programs that people are required to enroll in regardless of their choice, such as National Health Insurance, National Pension, Employment Insurance, and Workers’ Compensation Insurance.
Social insurance was introduced not only for economic reasons, but also to strengthen social solidarity and a sense of community. In the modern world, the lives of individuals are becoming increasingly uncertain and complex. In this environment, it is almost impossible for individuals to bear all risks on their own. In the past, families and communities shared these risks, but nuclear families and urbanization have weakened traditional safety nets, making it necessary for the state to step in and create new forms of social safety nets. This is how social insurance was born.
However, there are some people who question this compulsion. One of the reasons is that they think they pay a relatively high premium. Since social insurance is based on a percentage of your gross income, high-income earners pay higher premiums. This doesn’t mean that their pension payments will increase at the same rate. As a result, social insurance may have a lower rate of return than private insurance for high-income earners. Higher income earners also pay more for national health insurance for the same benefits. In this way, high-income earners suffer relative losses and low-income earners benefit from social insurance. However, this is where the nature of social insurance – social solidarity among community members – comes into play and its compulsory nature can be justified.
Another important role of social insurance is to ensure social stability. Whenever the economy is unstable, it is the low-income and vulnerable groups that suffer the most. They lack the ability to cope with economic shocks and can easily fall into poverty. Social insurance can help cushion these economic shocks. For example, unemployment insurance helps households achieve economic stability by covering the loss of income due to sudden unemployment. National pensions are also an important means of preventing poverty in old age in an aging society. Thus, social insurance is more than just a way to diversify individual risk; it is also an important device for increasing the economic stability of society as a whole.
Some people argue that social insurance is an unjustified state intervention in the insurance market. However, if we apply this argument to employment insurance, it becomes clear that it is not valid. In general, in order for private insurance products to be offered, the risks to be insured must be independent of each other, such as cancer or car accidents. However, unemployment is highly interdependent, meaning that the probability of your unemployment increases as the unemployment of others increases, as we experienced during the foreign exchange crisis, so private insurance companies are not willing to provide employment insurance products. National pension and national health insurance also have to prioritize the public interest of the state, and cannot be left to private insurers who pursue commercial interests. Therefore, social insurance must be led by the state.
There is another reason why the state is in charge of social insurance. It is to protect and support the socially vulnerable. Private insurance companies are profit-seeking enterprises, which means that they are limited in their ability to provide insurance services to those who are not economically profitable, such as people with low incomes or poor health. State-led social insurance, on the other hand, can provide equal access to these vulnerable groups. This promotes social equality and contributes to ensuring that all citizens have a minimum standard of living. Social insurance is therefore more than just an economic tool; it is an important means of realizing human dignity and social justice.
The state must provide a safety net for individuals to cope with risks. The state has introduced the social insurance system as a device to do so, and it is bound to have a certain degree of compulsion. Recognizing the importance of social insurance, it is necessary to continue to pay attention and make efforts to ensure that all citizens can lead a more stable and dignified life.
