Session: 58

Social Security

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Summary

The new Social Security force was enforced in 1997. This law represents one of the most important reforms made to Social Security in our country. The present paper shows an analysis of the operation of the life and disability insurance and the worker's compensation insurance included in this reform.

This analysis evidences that for the life and disability insurance the government must go on financing this coverage if its current scheme of operation is not modified, since under the current conditions its real cost is greater than the premium defined for it.

Regarding the worker's compensation coverage there is evidence that its contributions are greater than the premium required for the pension payments.

In this investigation the variables that determine the cost were reviewed, being the claim experience and the discount rate used in the estimation of life annuities the ones that primarily have an effect on this amount.
If we consider all the variables that may somehow reduce the cost, the resulting effect is a premium greater than the one defined in the Social Security Law, which compels to think on an alternative scheme that allows this insurance to offer benefits to the workers and at the same time doesn't mean an additional cost for the government.

Given this we propose a scheme where the individual account is not consider to complete the cost of this insurance. In the case of disability, instead of considering a life annuity, the pension is paid up to age 60. Additionally, the insurance company that pays the pension to the disabled contributes to the individual account of the worker the contributions for the retirement and old age insurance, as well as the housing institute contributions.

The proposed scheme solves the conflicts that originated proposal to reform the Social Security approved on march 20 by the House of Deputies, where it is proposed not to use the individual account for the payment of the life, disability and worker's compensation insurance. 
On the first and second section of the paper there is a description of the characteristic of the life, disability and worker's compensation insurance. The third section describes the operation of the life annuities derived from social security and its link with this insurance.

The fourth section presents the costs of each obligation, as well as the variables that affect them. There is also a description of the methodology used to obtain the costs and simulations under different scenarios are presented. Finally, an alternative proposal for the operation of the life, disability and worker's compensation insurance is exposed.

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Emma Izquierdo obtained her degree as Actuary in the Instituto Tecnológico Autónomo de México (ITAM) in 1990. She also obtained a diploma in econometrics in the ITAM, as well as the diploma on insurance from MAPFRE. She has studied in the Swiss Center of Insurance Formation in Zurich.

She has developed her career in the insurance area and has been responsible of important positions in this subject, specially during her work at the National Insurance and Bonds Commission from 1991 to 1996. In this commission she had the positions of director of Actuarial Development, Director of Technical and Actuarial matters, and Director of Development and Research and advisor to the Vice-president of Development.

From 1997 until now she has been an independent consultant in the Mexican Institute of Studies in Insurance and Bonds, Pensiones Vital, Afore Inbursa, GNP, among others. She also coordinated the analysis and technical information of the news report "Presente y Futuro" of "El Economista" newspaper.

She also collaborates in different publications such as the magazine Actualidad en Seguros y Fianazas and the publication of the pension fund administration association. Emma Izquierdo is co-author of the book "Study and Interpretation of the New Social Security Law" published in 1996.

She recently incorporated to Buck Actuarios Consultores' team for the development of the services related to the new Social Security Law, including carrying out of seminars and other special projects of the firm.

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