Covid19 strain on already overburdened system

The covid19 pandemic could place an additional economic strain on TT, in terms of stress on the National Insurance Scheme (NIS). There is also the issue of pandemic leave, the details of which and its impact on the NIS are still unclear.

There is a shortfall in the system which could be compounded by pandemic leave – an attempt by Government to cover how workers are treated if they are absent from work because of the virus, several analysts told Business Day. The NIS currently provides coverage for sickness and maternity leave, retirement and invalidity, old age pension and employment injury.

"The recent covid19 pandemic will only serve to exert additional pressure on an already overburdened NIS," said former minister in the ministry of finance Vasant Bharath.

He estimates an annual gap of $4.7 billion between benefits expenditure and contributions to NIS and attributes this to an ageing population where people are living 20 to 30 years beyond retirement.

Another reason for this gap, Bharath continued, is displaced workers, noting as many as 20,000 people, in the last five years, would not have contributed to NIS. He said there are solutions proposed in the ninth and tenth actuarial reviews to address challenges in the system. This, he said, includes increased contributions, raising the retirement age to 65 and a better investment portfolio, but observed these recommendations "are all long term and irrelevant to the current and existing situation."

In a wider context, Bharath said the pandemic will affect international insurance funds and the NIS in TT is no different.

"Given the global state of play with the pandemic," Bharath added, "for the moment this is a very volatile and fluid situation that must be tackled on an ongoing basis." Once the pandemic is over, Bharath said the country will have to determine longer term strategic issues facing the fund where the financing gap is concerned.

On pandemic leave, Bharath said while he awaited final measures from the Government, they should include at least partial payments of wages for employees in the private sector.

UWI economist Dr Vaalmiki Arjoon also red-flagged the state of the NIS and said the National Insurance Board (NIB) "could be headed toward bankruptcy in a decade."

Like Bharath, Arjoon identified the contributions-to-benefits gap as a key reason for this.

"The extent of NIS payments made to the public far exceed the level of NIS contributions being made, especially since people are living longer lives," he said.

Arjoon also observed the NIB has not been earning substantial returns on its investments in the local and global capital markets.

"The investment fund of the NIB has been worrying for quite some time," he said.

He observed that 46 per cent of the NIB fund is invested in equities, and the portion that is invested in global markets have recently taken a hit. "The S&P 500 has declined by over 28 per cent in this last month – the worst performance since the Black Monday stock market crash of 1987." Arjoon said the FTSE (London stock index) and the Dow Jones Industrial Average have both dropped by 27 per cent and 30 per cent respectively.

"With such distressing performance of the markets, the equity portfolio value of the NIB fund would have fallen." He believed the fund could soon face further difficulties in the coming months as the NIB may receive even fewer contributions and could be required to pay out substantial amounts to contributors who may become displaced and jobless due to the economic fallout from the covid19.

Arjoon examined a few scenarios. When workers are laid off it meant they, with no income, and the employers, usually small businesses, would make fewer contributions. Businesses that shut down, he added, will stop making contributions altogether.

"Overall, the fund will collect less monies, which further limits the fund’s value." Even after the economic slowdown caused by the pandemic is over, Arjoon said, "It will take time for the small businesses’ earnings to improve, allowing them to afford to pay NIS contributions."

There are already small companies struggling to meet costs including wages, Arjoon said.

"Many will not want to take a loan to be able to pay wages, and therefore may choose to lay off some workers, either temporarily or permanently. "

Arjoon did note Government's announcement on Monday of a salary relief grant for those who lost their jobs will receive a source of income – approximately $1,500 per person for three months, an initiative that is estimated at $400 million. "This will help to ease the burden for these workers," Arjoon said.

In a statement Wednesday the Ministry of Finance said by March 30, it expects to finalise details on this salary relief grant. Grants will be issued on a case by case basis, depending on the individual’s personal circumstance. The grant will be funded by the State but the NIS system will be used for disbursement.

But Arjoon cautioned that some people may be laid off for more than three months, while others may be permanently laid off and must look for another job.

Apart from providing $1,500 to those who lost their jobs, Arjoon suggested a programme to help companies that must close in the short-term.

"It may be better to also consider direct financial assistance for the companies that closed, so even though they would remain temporarily closed, they can continue to pay their employees’ wages and meet other overhead costs.”

He noted that those who lost their jobs and are receiving the $1,500 for three months will not be making NIS contributions.

He also said the VAT refunds, due to be paid out next week as disclosed by the finance minister, will help to ease some of the burden for these companies, but noted the amount will not be sufficient for many small companies since over 4,000 are owed an average of $3,000 in refunds.

On pandemic leave, Arjoon said the Labour Ministry has not yet outlined the details of the policy. It has been reviewed by a Cabinet sub-committee and is expected to be disclosed this week.

"If some workers from the private sector access pandemic leave, it would not be practical for the NIB to be required to pay these workers for the duration of their leave. The State may very well step in the assist with these payments, as they have with the $1,500 salary relief to displaced workers."

Arjoon said it would be very difficult for many employers, especially smaller companies, to pay people while they are on pandemic leave "as their earnings would have taken a considerable hit." He said it is unreasonable to expect the NIB to make these payments, but said the fund will again face added strain.

How the private sector responds to pandemic leave is still critical to the policy, one insurance broker said, highlighting a position similar to Arjoon.

Currently, there is "a standard exclusion" for pandemic cases on health policies, Universal Insurance Brokers executive director Melesha Gabriel told Business Day.

"There is currently no model existing for insurers to cover a crisis such as covid19."

What insurers are dealing with is how to continue existing services while limiting direct contact with clients in line with recent public health regulations on social distancing, through the use of technology.

"Over the past 12 days, we’ve witnessed a massive shift toward online/digital solutions from various sectors including the insurance industry."

In the case of Universal Insurance, Gabriel said the company is already poised to efficiently respond to this pandemic.

"Our online solutions were launched over a year ago with great response. Our team is geared to function remotely in response to social distancing as our systems are fully automated with the technology and infrastructure in place," she said.

Industry-wide insurers are making these changes.

"Many companies are now forced to invest in the infrastructure and training as well as embrace digital solutions in order to effectively respond during this time of crisis as it would differentiate between survival or sustainability of business."

Business Day sent questions via email to NIB about the challenges brought about by the coronavirus for unemployment leave and sick leave, as well as the implications of the pandemic leave. There was no reply up to press time.

At a news conference on March 15, Labour Minister Jennifer Baptiste-Primus said workers who do not receive sick leave, and workers who may have used up their sick leave before the outbreak of covid19 will be able to access pandemic leave. Baptiste-Primus said the guidelines listed in a draft policy were to mitigate the impact of the closure of schools for parents/guardians who have to find ways to care for their children during working hours.

She said the special-leave arrangements would apply to public officers, whether permanent, temporary, monthly-paid or daily-rated, fixed-term contract employees, short-term contract employees, on-the-job trainees and officers who fall under the purview of the Salaries Review Commission. Going through the guidelines, she said children should not be allowed at workplaces, facilities and in company vehicles. She also encouraged workers who are not sick to go to work. In homes with two parents, it was suggested that one parent stays at home with the children while the other goes to work.

In a statement, the joint chambers of commerce – TT Chamber of Industry and Commerce, Amcham, the Energy Chamber and the TT Manufacturers’ Association – supported the policy. The chambers added that to implement the proposals, the “specific form of leave will need to be discussed by employers and employees and in some cases their representatives,” and would need to take into account the circumstances of each company and each case.

They said, “Many of our member companies have already instituted home working policies and other measures to promote social distancing and intensified hygiene controls in the workplace.”

The group also urged everyone to take these measures seriously, saying, "Lives depend on it.”