FINAL PROJEC T R E P O R T
THE ROL E O F GROU P INSURANC E PLAN S I N
COMPLEMENTING
SOCIAL SECURIT Y SCHEME S (SOCSO )
CASE STUD Y : BAT U BERENDA M AN D BUKI T R A M B A I
INDUSTRIAL ESTATES , M A L A C C A .
PRESENTED T O
BUREAU O F RESEARC H A N D CONSULTANC Y
M A R A INSTITUT E O F T E C H N O L O G Y
BY
VIJAYA LETCHIM I S . THAYA N
ROAIMAH O M A R
ITM M A L A C C A
O C T O B E R 199 6
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I^STTTUr TLXXQLOgi
SOlXH
Surat Kami : . . J ^ U * ™ ™ ) . Tarik
Surat Tuan : Samb.
MJWL
h : J.J.^™?±J.?.?±
Tel: 409114093
Cik Vijaya Letchim i S . Thaya n
ITM Cawanga n Melak a
Peti Sura t 21 6
Jalan Han g Tua h
75720 MELAK A
DITFRIMA
Puan,
R 3 00022 : THE ROL E O P INSURANC E COMPANIE S I N COMPLEMENTIN G
SOCIAL SECURIT Y (SOCSO ) I N MALAYSI A
Dengan horroat'nya^Sperkar a d i ata s adala h dirujuk .
Sukacita d i m a k l u m k a n bahaw a J a w a t a n k u a s a M e n g e n d a l i k a
n
Penyelidikan IT M dala m mesyuaratny a yan g k e 3 8 pad a 2 8 Januar i
1993 tela h bersetuj u meluluska n cadanga n proje k tersebu t denga n
kos keseluruha n berjumla h R M 5,000.00 .
Walau b a g a i m a n a p u n , Jawatankuas a merasaka n b a h a w a p r o j e k in i
perlu diubahsua i sedikit . Ole h yan g demikian , pua n dikehendak i
menghubungi Dr . Sye d No h Sye d Ahmad , Penolon g Pengara h (Akademik )
untuk mendapatka n nasihat .
Bersama-sama in i jug a disertaka n perjanjia n bag i m e n j a l a n k a n
projek Penyelidika n diantar a piha k puan denga n Pusa t Penyelidika n
dan Perundingan . Sil
a kembalika n perjanjia n in i denga n kada r
segera.
Sekian untu k makluma n pua n da n kerjasam a dar i piha k pua n kam i
dahului denga n ucapa n ribua n teriro a kasih .
Yang benar ,
DR. MOHAME D DAHALA N MOHAME D RAML I
Ketua
Pusat Penyelidika n da n Perundinga n
s.k. i
IK
. Enci k Mazla n Hashi m
Penolong Bendahar i
Bahagian Pejaba t Pengara h 0/
Pengetua <T°
ITM Cawanga n Melak a
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30hb Oktobe r 199 6
Ketua
Biro Penyelidika n dan Perundingan (BRC )
ITM, Sha h Alam.
Puan,
Laporan akhir penyelidikan Th e Role of Group Insurance Plans in
Complementing Social Security Schemes (SOCSO )
Case Study : Bat u Berendam and Bukit Rambai Industrial Estates,
Malacca."
M
Merujuk kepad a perkara di alas, bersama-sama ini diserlakan 3 (tiga )
naskah Laporan Akhir P si x dikan bertajuk " Th e Role of Group Insuran
Plans in Complementing Socia l Securit y Schemes (SOCSO) Cas e Study :
Batu Berendam and Bukit Rambai Industrial Estates. Malacca." ole h
kumpulan penyelidi k ITM Melaka untuk makluman pihak puan.
Sekian, terim a kasih.
Yang benar .
Vijaya -.era l imi S. Thayan
Ketua (
i
PROJEK PENYELIDIKA N
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ACKNOWLEDGEMENT
We would like to take this opportunity to thank all who have helped us in making this
research project a reality. Firs t and foremost, we owe our utmost gratitude to the Bureau
of Research and Consultancy for awarding us the grant to carry out this project and
allowing us an extended period of time to complete this project. Ou r gratitude too to the
Social Security Organization (SOCSO) in particular to Mr. Paguman Singh, Mr. Lee and
Mr. Dawamani Ponnusamy for entertaining our numerous questions and inquiries as well
as allowing us access to research materials and library facilities. W e would like to thank
all the survey respondents comprising insurance companies, manufacturing firms in the
Batu Berendam and Bukit Rambai Industrial Estates as well as employees of these firms
for their cooperation and assistance. We would als o like to thank the Statistics Unit, ITM
Shah Alam as well as Puan Maheran Katan and Encik Nasir Nordin from ITM Malacca
for their assistance in the data analysis. Las t but not least, our utmost gratitude to our
parents and family members, colleagues in particular Dr. Bahaiuddin Hj. Aziz and friends
for their moral support.
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T A B L E O F CONTENT S
Title Pag e
List of Project member s
Acknowledgement
Table o f content s
List of Table s
C H A P T E R 1 INTRODUCTIO
1.1 ,
N
Backgroun d
1.2 Proble
m Statemen
1.3 Objective
s of th e Study
1.4 Limitation
s
C H A P T E R 2 LITERATUR E R E V I E W
2.1 Definitio
n o f Socia l Security
2.2 Socia
2.3 Implication
l Security in Malaysia
s of the 1992 Amendments
to the Social Securit y Act 196 9
2.4 Implementation
2.5 Grou
s of the amendments
p Insurance Policies
C H A P T E R 3 RESEARC H M E T H O D O L O G Y
3.1 Primar
3.2 Secondar
y Dat a
y Data
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C H A P T E R 4 ANALYSI S O F R E S E A R C H FINDING S
4.1 Analysi
s of Employer Response t o SOCS O Scheme s 2
9
4.2 Analysi
s of Employe e Response t o SOCSO Scheme s 4
2
4.3 Analysi
s of Role o f Insurance Scheme s i n Providing Coverag e agains t
Occupational Injurie s 4
C H A P T E R 5 ANALYSI S O F TH E R O L E O F G R O U P INSURANC E
PLANS I N COMPLEMENTIN G S O C I A L SECURIT Y SCHEME S 7
9
2
CHAPTER 6 RECOMMENDATION S
6.1 SOCS
6.2 Grou
O7
7
p Insurance Schemes 8
REFERENCES 8
1
3
APPENDICES
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LIST O F
Table 3
Table 4
Table 5
Table 6
Table 7
Table 8
Table 9
Table 1 0
Table 1 1
Table 1 2
Table 1 3
Table 1 4
Table 1 5
Table 1 6
Table 1 7
Table 1 8
Table 1 9
Tabic 2 0
Table 2 1
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Table 2 2
Table 2 3
Table 2 4
Table 2 5 A ) and Table 25B)
Tables 2 6
Table 2 7
Table 2 8 A),28B),28C), 28D )
A, 3IB) , 31C )
Table 3 2 A,32B )
Table 3 3
Table 3 4
Table 3 5
Table 3 6
Table 3 7
Table 3 8
Table 3 9
Table 40
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CHAPTER I
I.I Backgroun
INTRODUCTIO
N
d
Economic and social development i n the past three decades has shifted the nation'
s employment structur e from one that was predominantly agricultural to one that is
increasingly manufacturing and services in orientation. Thi s development has brought
about significant improvement s in the wage earning capacities and consumption patterns
of the workforce. However , it has also inevitably resulted in an increase in the number of
employment injuries resulting from industrial accidents. Currentl y injures are the third
leading cause of deat h and disability in Malaysia . Th e manufacturing sector has the
highest accident rate compared to the agriculture, forestry, fishery and the commercial
sectors.
Despite the government's intensive efforts throug h its occupational health and
safety program s to minimize the number of industrial accidents, cases of industrial
accidents in Malaysi a had risenby 48.3% from 68,890 i n 198 6 to 133,29 3 i n 1993 . '
These accidents often resul t in injuries or death. Ove r the past three years, accidents at
work sites totalled about 400,000 6 0
% of them involved injuries to Hie upper limbs.
Most of the victims were machine operators. The affected worker s may be temporarily or
2
permanently disabled. I n cases of permanently disablement, th e workers may be forced to
leave their job s since they are no longer able to perform thei r normal duties effectively.
1
:
Th e New Slniit s Times 1s t April 199 5
TlicSt;ir I (Hli September 1 9 %
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The workers' performanc e at work will suffer thus affecting their ability to support their
families and dependents.
To address this problem th e government has set up the Social Security
Organization (SOCSO) to provide compensation to workers whojaad suffered injurie s or
death at the work place.
1.2 P R O B L E
M STATEMEN T
Since SOCSO's inceptio n in 1971, it has been providing benefits to protect
workers or their beneficiaries in the event of temporar y or permanent disablement or
death. However , SOCSO' s current benefits to the injured and disabled workers do not
commensurate with the contributions made by the employees and employers. Record s of
Bank Negara and the Economic Repor t and the Annual Reports of SOCSO indicat e that
SOCSO ha s given out little of the premiums it collected over the years. Wit h the new
amendment that increased the establishments registered to SOCSO and extend wage
ceiling up to RM 2,000 , tota l contribution to SOCSO ha s increased substantially. Fo r
instance, in 199 4 SOCS O fund s rose to RM 57 0 millio n but the amount paid out in
benefits was only RM 222 millio n which was less than half of the amount collected.
Nevertheless it is gratifying to note that SOCSO plans to increase minimum payments to
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beneficiaries and dependents of employment injur y and invalidity pension schemes by 12. 5
per cent and projects a payout of RM336.7 millio n for the year 1997.*
•0.
Another drawback of the SOCSO schemes is that benefits to workers are only
provided if workers are injured or disabled o r if workers die while in employment.
Therefore nothin g is returned to the workers if they are still healthy and have not been
injured at work. However , under groufHnsurance scheme, even if the workers are not
injured they will still reap the benefits of contribution after some time. (Anon, 1994 )
SOCSO i s also considerably slow in making payments to affected workers . Fo r
example, an injured employee may have to wait for 3 to 6 month s to receive compensation
after accident occurs. Therefore , th e employee would have to endure serious financial
difficulties i n settling his medical bills while waiting for the pay-outs from SOCSO . I n
some cases, injured workers have waited for over a year and there was still no response
from SOCSO . (Anon , 1994 )
SOCSO benefit s are als o strongly linked to the workers' dail y wages. Fo r
example, if the worker monthly wage at the time of accident is RM 300, h e will be
compensated u p to 9 0% of his monthly wages which equal to RM 270 pe r month. Th e
amount received i s in constant amount which may be insufficient ove r the years. Afte r
1
Th e Sta r 5tl
i Septembe r 1 9 %
3
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taking into account of the inflation rat e and the rising cost of living , the benefits which is
linked to the workers' pay will never be sufficient. Moreover , the amount payable
received wil l also depend on how long he has contributed t o SOCSO. Th e longer he has
contributed to SOCSO, the higher his benefits wil l be. Thus , if a^yorker only contributes
for 24 months ( which is the minimum requirement for contribution to be entitled fo r
SOCSO benefits), his benefits wil l be very small.
In this light, the role of group Insurance policies in complementing SOCS O in
providing additional coverage or perhaps replacing SOCSO coverage is studied as a viable
option. A worker who is insured under a group insurance policy may pay premium for
only a month and if an accident occurs immediately after that, he is still awarded a lump
sum amount irrespective of the amount of his contributions and his monthly wages., The
money received today in lump sum let say RM 20,000 i s worth more than RM 270 per
month received 1 0 or 1 5 years later .
4
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1.3
OBJECTIVES O F TH E STUD Y
This study attempted to investigate the complementary role* of the insurance
company in providing the social security benefits to manufacturin g workers . Currently ,
all employers are required by la w to register their employees earning less than RM 2,000
under the Socia l Securit y Scheme. Specifically , thi s study is aimed to achieve these
objectives: *
a.
v
To evaluate employer and employee awareness and response to the benefit s
provided under the SOCSO Scheme s and under Group Insurance Plans
b.
To compar e the benefits provided unde r the Group Insurance Plans and SOCSO
Schemes.
c.
To determine the extent to which employers provide coverage for employees
under Group Insurance Plans.
d.
To identif y problems faced by insurance companies in promoting Group
Insurance Plans.
e.
To recommen d improvements in the Social Security schemes and Group Insurance
Plan.
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1.4 LIMITATION
S
In carrying this study, several constraints was faced such as:
a. Limite
d budget to cover all the industrial areas in Malacca. Therefore , the
study focuse d on manufacturin g companie s in two major industria l estates,
namely the Batu Berendam and Bukit Rambai industrial estates.
b. Lac
k of cooperation from the manufacturing companies in terms of responding
the questionnaires given. Som e of the companies claimed that they are not allowed
to
disclos e information due to
c o m p a n i es
policies . Also , the employees cannot
disturbed during work time. Interview s could
only
b e
b e conducted during their coffee
or lunch breaks.
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CHAPTER 2
2. I Definitio
LITERATUR E R E V I E W
n o f Socia l Securit y
The International Labor Office (ILO ) defines social security,as "the protection
which society provides for its members, through a series of public measures, against the
economic and social distress that otherwise would be caused by the stoppage or
substantial reduction of earnings resulting from sickness, maternity, unemployment,
invalidity, old age and death, the provision of medical care; and the provision of subsidies
for families with children. Mos t countrie s provide social security in one form or another
4
to their citizens. Countrie s such as the United Kingdom, Australia , New Zealand and the
United States have very comprehensive social security programs which provided for a
wide range of benefits. Nevertheles s the costs of these programs were so overwhelming
that these countries have resorted to reducing benefits or increasing taxes to finance these
schemes.
In times of high unemployment combined with an aging population, i t has become
more difficult t o sustain the system. Furthermor e in these countries, the provision of
generous unemployment benefits has become a disincentive to work, especially to young
people leaving school. Henc e Malaysia realizing the disadvantages of such social
assistance schemes has opted for social insurance schemes which are financedby
contributions from employers and employees.
' Internationa l Labo r Office . 1984b : 1)
7
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2. 2 Socia
l Securit y i n Malaysi a
Social Securit y Organization (SOCSO) wa s set up by the government in 1971
under the provision of the Employees Social Act 1969 . Th e principal objectives of
SOCSO i s to provide workers certain benefits in the event of disablement, invalidity and
death. SOCS O is a government-run insurance scheme under the Ministry of Labor. I t is
an insurance agency for workers in the^private sector. I t provides protection against
industrial injuries. Th e scheme is based on compulsory participation and financedby
compulsory contribution by employers and employees. Th e scheme were designed to
cover not only work related injuries but also non-work related invalidity.
Initially the scheme applies to any employer who employs 5 or more worker
earning RM 50 0 or less a month. An y particula r employer employing at least 5 workers
with a monthly salary of RM 50 0 or below a month mus t be registered with SOCSO. I n
March 1984 , the act was amended to extend the wage ceiiing to RM 1,000 pe r month. O n
July 1 ,1992, th e act was again amended to include all establishments employing at least
one employee. Unde r the 199 2 amendment the wage ceiling was extended to RM 2,000
per month. SOCS O practice s the concept of "Once in, always in" whereby once an
employee is covered, she or he continues to stay covered, even if i n subsequent years her
of his earnings exceed RM2,000 pe r month
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An employee who is not required to become a member of SOCSO because his
salary on his firstjob was more than RM2,000 ca n opt to become * member providing his
employer agrees to contribute on his behalf i.e. there must be mutual agreement. I n
practice, most managerial and executive staff earning salaries of RM 2,000 or more in
medium to large establishments are protected in the event of accidents by insurance
policies taken out on a group basis by their employers, thu s very few workers avail
themselves of this privilege.
Each covered employee is provided a permanent social security number. Definition
of industries covered is quite wide an d covers even religious and educational institutions.
However certain groups of employees are exempted from coverage. Thes e groups include
those whose employment i s of a casual nature- domestic servants and spouses.
Government servants are also exempted.
Generally, two type of schemes are provided by SOCSO:
(i) Employmen t Injur y Scheme (E1S) and
(ii) Invalidit y Pension Scheme (IPS) respectively.
Both scheme s are financedfrom contributions paid by the covered employees and insured
employers. Th e contribution rate are income related and payable monthly by the
employers. Contributio n rate for EIS is 1.25 % o f the employee's monthly wage and is
wholly paid by the employer. Whil e for the IPS the rate is about 1 % of the employee's
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monthly wage and are shared equally by both the employer and employee ( each pay half
percent of the employee's monthly pay). Th e wage payment does not include employers'
contribution to pension or provident fund, travel allowances, gratuity, and annual bonus.
The Employment Injury Scheme (EIS) covers: worker s injured in the industrial
accidents; death occurring at the work place and while traveling on a specific regular route
between home and work place; and injur}' or death at the work place where the worker
take his meals during an authorized bifeak. Th e scheme also cover workers during a
journey which is directly connected to the worker's job as long as the accident does not
occur during a stop or deviation from the normal route. Unde r this scheme, SOCSO
provides medical benefits, temporary disablement benefits which consist of daily payment
subject to a minimum of RM9 per day; constant attendance allowance, rehabilitation,
5
artificial limb s and other appliances; dependents' benefits (a pension for widow, until
remarriage, and children until they reach 21 year s of age); funeral benefit (RM 1,000); and
benefits for occupational diseases.
The Invalidity Pension Scheme (IPS) covers serious disablement of a permanent
nature that is unlikely to be cured. I t provides the worker with a 24 hours insurance
coverage against death or invalidity irrespective of how and where it happens. T o be
eligible, at least 24 contributions out of 40 month s prior to the notice of invalidity must
* The Sta r Septembe
r 5 1 9 % Huma n Resource s Ministe r Datu k Li m A h Lc k reporte d tha t SOCS O ha s
incrcascdthc minimu m dail y pay-ou t rat e unde r th e cmplyment injur y schem e fro m R M St o R M 9 .
10
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have been made. Ful l pension is 50 per cent plus 1 per cent for every 1 2 contributions
over and above the basic 24 contributions subject to a maximum of 65 per cent. Ther e is
also a provision for reduced pension. Th e benefits of this scheme are invalidity pension,
invalidity grant, constant attendance allowance, survivors pension, funeral expenses and
rehabilitation costs. However , employees above the age of 55 ar e only covered by the
employment Injur y Scheme(EIS).
As at 1994, there were 2*4'r*;663 registered employers are covered by both
schemes. Wit h the increase in the cut-off monthly salary for the eligibility from RM 1,25 0
to RM 2,000 , th e number of workers covered under SOCSO schem e have totaled to more
than 7 million.
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2. 3 Implication
s o f th e 199 2 Amendments t o th e Socia l Securit y Act , 196 9
The recent amendments to the SOCSO Ac t seeks to extend the scope of coverage Of the
Act i n relation to employers, employees and employment injury. I t also seeks to improve
the benefit structur e under the Act as we!! as improve the administration of the Act.
2.3.1 Extendin
g the coverage: Employer s
All employer s employing one or more workers would now be covered by the Act.
However, hawkin g and mobile vendors are exempted from coverag e due to administrative
Annual Repor t fo r th e year 199 4 SOCS
O
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difficulties especially enforcement.
2.3.2 Extensio
n of coverage: Employees .
With the extension the following employee s would be covered:a) employees receiving a salary of $2,000 or less a month
b) employees receiving a salary of $2,000 an d above who have been previously covered.
c) employees receiving a salary of $2,000 an d above and who have not been covered
before (would now be covered by the Act) upon agreement by both the employer and the
employee.
d) all employees who have been covered under para c after initial coverage
e) employees employed fo r the purposes of catching fish in maritime waters or are
employed for the purposes of planting, upkeeping and harvesting paddy.
f) all nomadic aborigines employed in industries liable under the Act.
2.3.3 Extensio
n of the scope of employment injury
With the amendment all accidents of the following nature would be covered:a) while traveling on a route between his place of residenc e or stay and his place of work
and back;
or
b) while traveling on a journey between his place of work and the place where he takes his
meal during any authorized rest period; or
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c) traveling on a journey made for any reason which is directly connected to his
employment irrespectiv e of the mode of transport used.
2.3.4 Relaxin
g dependency qualification ^
Parents or grandparents who are prior to the amendments were partially dependent on the
earnings of a deceased insured person would now be entitled to full dependent benefits.
2.3.5 Extensio
n of wage categories'*''
With the lifting of the wage ceiling for coverage from $1,000 t o $2,000 th e wage
categories for purposes of contribution payments and benefit calculation were extended
from 1 4 wage categories to 24 wage categories as the rate of benefit is dependent on the
contribution which is dependent on wages, consequently the maximum rate of a benefit
has increased as follows i) for temporary disablement from $23.3 3 a day to S52 a day
ii) for total permanent disablement benefit from $28.50 a day to $58 a day.
iii) fo. invalidit y pension and survivor's pensio n (ful! qualifying condition ) from S617.5 0 a
month to $1,267.50 a month .
iv) for invalidity pension and survivor's pension (reduced qualifying condition ) from $47 5
a month to $975 a month.
This would definitely bring a benefit to workers earning more than a $1,000 a month.
2. 3. 6 Reducin g the contribution qualifying condition s under Invalidity Pension Scheme
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Concisely the effect o f the amendments are as follows :
i) the minimum number of contribution required has been reduced by 1/ 3 fro m 36 months
to 24 months for all qualifications for a pension.
ii) the period that is taken into consideration to decide on the full qualification for pension
has been reduced from 60 months to 40 consecutive months preceding the month in which
a notice of invalidity has been received by SOCSO o r preceding the death of an insured
person for eligibility for survivor pension and funeral benefits.
This means that with the amendments,%e qualifying condition s for invalidity pension,
survivor pension, and funeral benefits have been relaxed and made easier.
2. 3. 7 Allowin g insured persons and dependents to receive benefits under both the
Employees Social Securit y Act 196 9 and the Workmen Compensation Ac t 1952 .
An effect o f the amendment is that employees (and their dependents) who are presently
receiving coverage under the Workmen Compensation Act, 195 2 while being covered
under the Employees Social Security Act 196 9 are allowed to receive benefits under both
the Acts. Presently there is no such provision. Howeve r such coverage would lapse
automatically when the insurance policy for Workmen Compensation lapses.
2.3.8 Othe r Amendment s
Other amendments to improve and consolidate the provisions which need to be
implemented more effectively ar e as follows : a) Discretion to refer cases to medical board
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Reference to Medical Boar d to determine the disability question or the invalidity question
can now be made by SOCSO in situations where the insured person has passed away
before being examined by the Medical Board although SOCSO had received the notice of
invalidity or a claim for reference to a Medical Board before the death.
b) To have an alternate member on the social security appellate board
An alternate member representing employer and another representing employees has been
provided to ensur e the hearing of cases by the board can proceed even if one of the
representatives is not able to attend.'
c) Preventing Middlemen from gaining profit
Insured persons and their dependents are encouraged to deal directly with SOCSO or
through their union representatives or through lawyers on all matters. Thi s provision is to
ensure that the right of the insured worker and dependent is not exploited by unscrupulous
middlemen.
2. 4 I m p l e m e n t a t i o
n o f th e a m e n d m e n t s
The implementation o f the amendments will be made in accordance with the legal
provisions provided by article 66(5) o f the Federal Constitution. Thi s means that the
amendments would be enforced afte r they have been gazetted for purposes of
implementation. Provision s that bring benefits to all workers have been backdated to 1 st
January 1992 . Th e provisions that have been backdated are related to the following
matters :
I) extension of the scope of employment injur) ' to include commuting accidents
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II) relaxing the dependency qualification for parents and grandparents
III)relaxing the contribution qualifying condition s for benefits under the invalidity pension
scheme.
All other amendments were enforced beginning 1s t July 1992 «
2. 5 Grou
2.5.1 Genera
p Insuranc e Policie s
l Feature s
Organization in the private sector may take up Group Insuranc e Scheme to
complement th e existing SOCSO's coverag e which is mandatory. Grou p Insurance is
designed to provide coverage to group of employees under a master plan. I t is generally
used to provide cover on the lives of employees working either in private or public sector.
Recently, i n view of the current labor shortage in the major industrial area,
employers are using group insurance plan as a strategy to attract workers to work for
them. Som e companies have integrated the group insurance plan as a part of total
compensation packag e for employees. Grou p Insurance plans provide benefits in the
event of accident or sickness, death , disability and retirement. Thus , Group Insurance plan
could be one form o f employee benefit plans provided to the workers. Th e major
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