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National Insurance - Royal Commission - Fourth and Final Report - Membership, Finance and Administration


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1926-27.

THE PARLIAMENT OF, THE COlVIMONWEA.LTH OF AlTSTRALIA.

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·.·NATION AI_j . . INSURAN/OE.

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_ MEMBERSHIPi FINANCE, AND -

Presented by Command; ordered to be printed, 5th October, 1927.

! Cost of Paper :-Preparation, not given; 1,300 copies; approximate cost of printing and publishtng, £22. 1

------- Printed and Published for the GoVERN:MENT of the CoMMONWEAT.TH of AUSTRALIA by H. J. ll:REJm, \lovernmeut Printer for the State of Victoria. No. 120 .-PRICE 9D.-F.3686.

INTRODUCTION

1. MEMBERSHIP (a) Limit as to Employment

(b) Age Limits

(c) Wage Limits d) Geographical Limitation of the Scherite

(e) Voluntary Membership Recommendations

s 2. FINANCE

(a ) Method of raising Funds

(b) Contribut ions by Insured Persona

(c) Contributions by Employers

(d) Government Subsidy ..

(e) Rate of Contribution .. {ji Co llection of Contributions (g) Cost of Administration

(h) Payment of Benefit s (i) Investment of Funds

(j) Audit (k) Actuarial Valuations

Recommendations

3. ADM I N I STRATION

CONTENTS.

(a) Administration through Approved Organizations

(b) Mutual Benefit Societies in operation in :Australia

(c) Administration through a Central Organization Recommendations

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ROYAL COMMISSION ON NATIONAL INSURANCE.

}'OURTH AND FINAL REPORT. ,-V

To His Excellency the Right Honorable JoHN LAWRENCE, BARON STONEHAVEN, a J.l1ernber of His MaJesty's Most Honorable Privy Council, Knight Grand Cross of

the Most Distinguished Order of Saint Michael and .Saint George, Companion of the Distinguished Service Order, Governor-General and Comrnander-in-Chief.in and over the Cornrnonwealth of Australia.

lVIAY IT PLEASE YouR ExcELLENCY.

We, yolir Commissioners, appointed by Letters Patent to inquire into and report upon :­ (a) National Insurance as a means of making provision for casual sickness, permanent invalidity, old-age, and unemployment; and (b) the operation of the maternity allowance system, with a view to the incorporation

with NatiQnal Insurance of a scheme for securing effective pre-natal and other · assistance to mothers ; and (c) the question of amending the Invalid and Old-age Pensions Act 1908-23 so as to provide for the payment of destitute allowances, have the honour to submit to Your Excellency our Fourth and Final Report.

In our previous Progress Reports we stated that the questions of membership, finance, and administration of the proposed National Insurance Fund would form the subject of a final report when the other sections of our inquiry had been completed. Our First Progress Report, dated the. 3rd M·arch, 1925, contained the conclusions at which we arrived on the questions of casual sickness,

permanent invalidity, maternity, and old-age. Our Second Progress Report, covering the question of unemployment, was presented on the 30th July, 1926, and our Third Progress Report, dated . the 15th December, 1926, completed our investigations concerning the payment of destitute allowances.

With respect to the question of making provision for casual sickness, permanent invalidity, old-age and maternity, we have recommended that the payment of cash benefits should be separated from the provision of medical benefits; the former being provided through a National Insurance Fund and the latter co-ordinated with the public health services. As an essential preliminary to

the introduction of any system of unemployment insurance, we have recommended that certain action should be taken towards minimizing the risks of unemployment. It will thus be seen that in both the questions of public health and unemployment, we have indicated that certain action should be taken in connexion with such matters apart from the National Insurance Fund. We have, therefore, in this Report limited ourselves to the questions of membership, finance, and administration of the proposed National Insurance Fund in which

the cash benefits, previously recommended, will be made available to insured persons.

1. MEMBERSHIP.

Early national insurance legislation covered the employees in specially defined industries only, but the tendency in recent years has been to extend the field of application of national insurance to all persons working under a contract of work, service or apprenticeship without regard to the trade in which el'}gaged; the aim being to make national insurance available for

all whose economic position is s C...Jh that they need to be safeguarded against the effects of the incidence of the various social risks. Nevertheless, in many countries there are still certain conditions limiting the number of persons covered by the insurance system ; the conditions being usually those dependent on citizenship, the age of the insured the amount of wages received,

and the nature of the occupation in which engaged. In only the minority of cases are all persons' performing manual and non-manual work included without restriction as to age or wage conditions. Certain countries have instituted a system of classification of insured persons according to the trade in which engaged ; the list of trades included comprising practically all the important

industries in each country. · > '

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(a) LIMIT AS TO EMPLOYMENT.

1'he systems of national insmance in operation make provision in most cases for wage­ earners only, and are thus systems of workers' insurance rather than of national insurance. In some instances certain classes of workers, particularly non-manual workers, are not subject to the inswance scheme. Agricultural and forest labourers, domestic servants and casual workers are, in several instances, excluded, whilst those employed by the State, local or other public bodies, or by companies which provide benefits at least equal to those given under the national scheme, are in certain cases exempted.

The usual restrictions as to the employments which do not come under the insurance scheme are those relating to employees receiving above the maximum limjt, employment without wages, subsidiary employment not the principal means of livelihood, employment which secures benefits of equal value to those given under the national scheme, pensioners, dependants, persons mainly dependent on earnings derived from an occupation outside the

scope of the scheme, persons engaged only occasionally or temporarily, small employers, certain classes of home-workers, crews of sea-going vessels, and persons detained in reformatories. Other provisions are designed to meet the special circumstances of those who are in hospitals, or receiving compensation from employers, also soldiers, sailors, and airmen in the defence forces. The scope of national insurance, however, is. continually growing wider ; the t endency being to extend its benefits to all workers in all industries.

Employment is usually the basis of membership, and the provision of benefits for persons not usually employed is generally regarded as supplementary to the main object. Any scheme of national insurance which includes as insured persons other than employees involves considerable difficulties of administration. Membership ceases automaticall y with cessation of employment

unless the insured person continues as a voluntary contributor at his own expense. In one system provision is made that every person who, having been insured as an employed contribut or, ceases to be employed remains an insured person and is entitled to all ·benefits for one year after employment ceases.

Married women who are home-workers are stated not to be an insurable proposition, as there cannot be that necessary supervision which operates over women in other employment, and in some schemes it is definitely laid down that a married woman cannot under any circumstances become a voluntary contributor. Special consideration is required with respect

to the difficult questions arising in connexion with women who give up work on marriage, as the change in the economic circumstances of the woman which normally takes place at marriage introduces a complication into insurance administration, and often the status of the insured woman after marriage cannot be immediately determined. . Apprentices and others undergoing a period of industrial training are in most cases included

within the scope of compulsory insurance. Seasonal workers and casual workers when employed in certain industries are usually compulsorily insured on the same basis as other workers, provided they depend for their livelihood on such employment. In those countries which have adopted a system of general workers' insurance, domestic servants are also included amongst those eligible

for insurance. The following persons are generally excluded from the provisions of the various Workers' Compensation Acts in operation in Australia :-Workers over a certain income limit, outworkers, casual workers, members of the employer's family residing in his house, members of the public service and police force, and those in the naval or military service of the Crown. The workers included are those who have entered into or work under a contract of service or apprenticeship

or otherwise with an employer, whether by -vva;r of manual labour, clerical ·work or othenvise, and whether the contract is expressed or implied or is oral or in ·writing. Casual workers, workers on their own account, employers with small incomes, agricultural workers, domestic servants, seamen, immigrants, and war pensioners ·will require special

consideration at the inception of the scheme. Nevertheless jt is desirable that efforts should be made to include all breadwinners earning less than a certain income within the scope of the scheme, irrespective of whether such workers are employees or workers on their own account, as the exclusion of any section of those workers will necessitate the movision of other forms of assistance being made for them. ...

(b) AGE LIMITS.

. In most systems the age limits to membership of the scheme are prescribed, but are generally som13what. similar, the being usually about age 15, and the maximum about age 65, although m some countries no mention is made of a minimum or maximum age. (c) VVAGE J..1IMITS .

- Although it has generally been found unnecessary to · prescribe an income limit in the case of manual wotkers, yet in many countries the maximum wage which th_e non-manual worker may

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receive and still remain a member of the insurance fund is fixed, as it is not considered necessary to compel those to insure who receive wagc;s which are considered sufficient to enable individual provision to be made against the risks of for work. The wage limit depends upon

the economic conditions and on the of in the various countries, and as a result

there is considerable variation with respeet to the ineome-limit of wage-earners eligible for the benefits provided. In determining the rate of remw1eratiq:q of t:Q.e wage-earner the value of all emoluments received by him in return for his services is takep_ into account. Where a per13on is engaged in more than one each employment is considered separately.

It has suggested that the proposed nation;:tl insuranee scheme in Australi[!. should not eover all wage and salary-earners, but should be restricted to those receiving less tha,n a certain ineome, as it is considered that if an income limit is not fixed many people who do not requiN assistance would be eligible for the benefits provided. It has also been suggl3sted that if the scheme were made applicable to all persons in receipt of salary or wages not exceeding £500 per annum, with provision for an extension in the ease of married men with dependants, the position would be fairly met. A similar limit might also be applied to workers on their own account and to

the small employers of labour admitted to a voluntary seheme.

Under the vVorkers' Compensation Aets of the several States, an employee whose remuneration exceeds the following maximum is exeluded from the provisions of the Act, viz. :­ New South Wales, (manual) without ineome limit, (non-manual) £750 per annum; Vietoria, (manual) without income limit, (non-manual) £350 per annum ; Queenslanq, (:manual and non-manual) £10 per week; South Australia, (manual and non-manual) £10 per week; Western Australia,

(manual and non-manual) £400 per annum ; Tasmania, (ina;nual and non-manual) £5 per week. The agreeme.q.ts between friendly societies and medieal practitioners exelude from medieal · benefit all members in receipt of aimual incomes exceeding in New South Wales, £364 ; Victoria, £312 ; Queensland, £400 ; South Australia, £450 ; Western Australia, £400; and Tasmania, £312.

-When receiving more than the mau"'Cimun'i income prescribed a member may continue to be eligible for certain medical benefits if he has dependants. The main objection raised by friendly societies to the model agreement relating to medical attendance is in regard to the income limit, as they are generally opposed to any income-limit.

It ha,s been estimated that in the year 1921, 68 · 5 per cent. of the total wage and salary earners in Australia were in receipt of an income of less than £200 per annum, 94 · 4 per cent. less than £300 per annum, 97 · 5 per cent. less than £400 per an.num, and 98 · 6 per cent_ . than £500 per annum. · It v,rill thus. be seen that, even when allowance is m:;tde for the :in,crease in wages since 1921, the percentage in receipt of higher incomes is relatively smalL If an inco.me limit is placed on membership any future alteration in the standard of wages may have an important

influence on the eligible membership of the scheme and a consequ,ent effect on its finan.cial basis. As the result of an increase in wages since the institution of national insurance, it has been neces_sary in some countries to raise the maximum income-limit in order to avoid excluding a large number of workers who would normally have benefited by the scheme if wages had not increased. Wben

an insured person's income is raised to more than the maximum_ prescribed, he generally ceases automatically to be liable to the compulsory provisions, but in some cases may continue.insurance under voluntary provisions, and experience has shown that where a low income-limit is prescribed the number of compulsory exits from insurance on tbis account is very appreciable, and resul_ ts in many anomalies.

(d) GEoGRAPHICAL LIMITATION or THE ScHEME. . It hi::ts been suggested that in many distr_ icts in Australia in which the population i very scattered it will be extremely difficult to adm.inister a national insurance scheme, .and that if t.hose areas were temporarily eliminated from the scheme, the total number affected would not be large,

as only a small percent age of the population is located in such outback areas. It is desirable, however, that the scheme should cover all in need of insurance, and the remoteness of a person or of his residence need not exelude him from benefits so long as S?>tisfactory certification as to eligibility for benefit can be obtained. It is considered that workers m the outback areas sh

be given special consideration and not penalized by any such exclusion from the benefits of the scheme.

(e) VoLUNTARY MEMBERSHIP.

In the event a system of compulsory insurance being instituted with certain limj_tations, many employees, workers on own s,ccount, and employers in small businesses who are exempt from the compulsory provisions of the scheme may desire to contribute for si;rp.ilar benefits to those available for employed contribut-ors, and it is desirable that such provision should be 1:9-ade

available. Many who are not employees and who are in receipt of small incom

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are often in urgent need of the benefits provided by national insurance. In some schemes provision has been made for the following to insure voluntarily, viz. :- Persons exempted from insurance ; members of the family of the employer Without any specific employment and without remuneration; also proprietors of establishments who regularly employ at the most two personR subject to insurance, provided that their. incomes do not exceed a prescribed amount.

Although it is estimated that the majority of the insured population will remain wage­ earners for the whole of their working lives, yet it is essential that provision be made for those who cease to be wage-earners and still desire to be eligible for the benefits provided by the scheme and towards which they have contributed for many years. The provision of a surrender value on termination of insurance has not been introduced into any system of national insurance against contingencies, as such is undesirable and would considerably affect the :financial basis if instituted. Notwithstanding that the voluntary provisions in other countries have not proved entirely successful, yet efforts should be made to devise a scheme which will make insurance benefits available for this section of the community.

RECOMMENDATIONS.

Your Commissioners recommend :-(i) that the compulsory provisions of the National Insurance Fund shall apply to all wage and salary-earners in Australia who are over the age of 16 years; (ii) that the voluntary provisions shall apply to all workers on own account

and proprietors of small establishments ; (iii) that exemption from the compulsory provisions shall be granted to membe1·s of mutual benefit associations which guarantee, and to those in employment which secures, equal benefits to those provided by the

National Insurance Fund.

2. FINANCE.

The :financial basis of the national insurance systems in operation in the various countries depends, to a certain extent, upon the nature of the system instituted and upon the social and economic conditions operating in the country, but is generally either (i) the distribution of the cost each year amongst the contributors on the basis of the actual expenditure plus a certain percentage for the formation of a reserve fund, or (ii) the accumulation by regular contributions of a capital fund which will meet the estimated cost in future years.

The former, or assessment method, although less costly in the earlier years, is objected to as improvident, and as being actuarially unsound. It can only be applied in compulsory schemes which embrace a large membership, the standard of which will be maintained in future years, as experience has clearly shown that any scheme which provides for a variable premium in accordance with the expenditure of the fund in each year is generally administratively impracticable.

latter, or premium system, is based on ordinary insurance principles which demand

that the regular contribution must be actuarially calculated as being of such amount as will provide a reserve fund sufficient to meet future anticipated liabilities, the present value of the contributions being equal to the present value of the benefits. This system is sometimes opposed on t he grounds that enormous reserve funds are accumulated.

It is essential that the national ins.urance scheme should be placed on a sound :financial basis from its inception, and, as the result of well-organized statistical departments, adequate data available to enable the several risks to be insured against to be fairly accurately measured and for the National Insurance Fund to be established in accordance vvit h insura.nce principles.

(a) M E THOD OF RAISING F UNDS.

The estimated cost of national insurance scheme can be met in severa.l ways, and the methods by which the necessary funds are obtained vary in the several countries in which a scheme has been instituted. Prior to the inception of any national insurance scheme, a considerable and costly burden is in existence as the result of the wage-earner's incapacity for work, and the aim of national insurance is to institute a co-operative system which will distribute this bm;den in an equitable manner. It is generally considered desirable that all parties who will possibly benefit from the scheme should be compelled to contribute to the funds, the cost being usually borne on a contributory basis by the insured persons and their employers with, in some countries, the participation of the State and or other public authorities. The Russian code is the only legislation which throws the burden of the whole contribution on the employer, whilst the only system which excludes

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the employer's contribution is that of Roumania. The division of the amount of contribution between employers and persons differs considerably in the several countries, the direct contribution by the insured person varying from one-third to two-thirds of the total contribution, and the employer's contribution varying within the same limits. In the case of employees on a small wage, the employer's contribution is in some cases increased and that of the employee

decreased proportionately. The total contribution payable by the employer and the insured person is usually augmented by a Government contribution covering either a proportion of the cost of insurance or certain expenses accepted by the Government.

It has been suggested that the cost of national insurance should be a direct charge upon each industry, but a system of insurance which provides for the grouping of insured persons according to the industries in which they are employed is as every industry cannot

satisfactorily carry its own burden or pass it on to the consumer, this being especially so in metalliferous industries. It is also administratively impossible to classify the industrial population into definite industrial groups. Certain industries may possibly be able to provide similar benefits for emplo:yees within the industr:y at a lower cost than b:y the national fund, but on the other hand in other industries the cost would be considerably greater. The essential basis of national insurance is t4e equal distribution of the risk amongst all exposed to that risk in one collective scheme.

Some witnesses have expressed the opinion that it might be more economical to raise the funds by a s:ystem of direct taxation and to pa:y the benefits from Consolidated Revenue, as it is considered that it were scientifically levied the contributions would be on a more equitable basis than in the case where a direct uniform contribution is prescribed. But it is contended that as long as the Government meets the whole cost, the benefits provided will inevitably be

looked upon as a gratuity or charity, whereas a scheme based on direct contributions from those who will directl:y benefit is the onl:y system which embodies the prjnciples of insurance. The majority of witnesses that an equitable scheme would provide for the National Insurance Fund to be financed b:y contributions pa:yahle l:>:y the insured person, the emplo:yer and the

Commonwealth.

(b) CoNTRIBUTIONS BY INSURED PERSONS.

The aim of national insurance is to assist the wage-earner to provide for future emergencies and to encourage thrift, and in most countries the insured person's contribution forms the essential basis of the scheme. Contributions are not usuall:y required during periods when the insured person is unemployed or when incapacitated and in receipt of benefits, and it is thus possible that the financial position of the scheme ma:y be affected by an:y serious variation in the unemployment or

sickness experience of insured members.

Prior to the introduction of national insurance the wage-earner bears a considerable portion of the loss arising from his incapacity to work, b:y lost wages and reduction in his earning capacity. Employees who are members of benefit funds operated b:y trade unions and mutual benefit societies oontribute to such funds voluntaril:y. - It is not only reasonable but also equitable that every person

who is likely to benefit should contribute towards the scheme, and any system which provides for insured persons obtaining benefits from a fund to which the:y have not directly contributed would be most unsatisfactory. The contribution required from the worker is not usually sufficiently large to necessitate an increase in the rate of wages nor does it lower his standard of living, but the

knowledge that it is his own provision for the future inspires him with a spirit of thrift and self­ reliance which would be lacking under a non-contributory scheme. It has been suggested that as wages in certain industries include some provision for the maintenance of the worker when incapacitated for work, insurance contributions can be paid from that part of wages which is

intended as provision for such incapacit:y.

(c) CoNTRIBUTIONS BY EMPLOYERS.

Contributions to the fund b:y emplo:yers are provided for similarl:y to those from employees, but the ratio of the emplo:yer' s contribution to the emplo:yee' s contribution varies in several countries. In some cases an additional premium is pa:yable by the emplo:yer in undertakings where there is a particular risk of illness. Sueh contributions are pa:yable for every calendar week during which

the worker is employed, the emplo:yer contributing only in respect of those in his employment. It is desirable that the same rate of contribution be payable by emplo:yers for both male and female employees, so that the question of preference in emplo:yment to either sex will not arise. Contri­ butions are also pa:yable by the emplo:yer in respect of those emplo:yees who have been granted

exemption from the scheme, it being considered that the emplo:yer's contribution should be according to the number of emplo:yees without regard to their individual circumstances.

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The employer's contribution· is regarded as the price which industry pays for its share in the diminution of the worker's earning capacity. A proportion of the. wage-earner's sickness is stated to be due to the conditions of mnployment, and national insurance directs attention to the need for providing for the maintenance of workers during incapacity for work, and also for

improving their working conditions in ·order t o minimize sickness and accident . The employer now bears a portion of t he loss arising from the wage-earner's incapacit y for work by a reduction in production. In many instances, employers either continue paying the wages of their employees during periods of sickness or contribute towards t he cost of the establishment benefit funds which

have been instituted for the purpose, or in some cases pay portion of t he contributions for their employees who are friendly society members. -Under an effective national insurance systmn the employers are relieved to a considerable extent from contributing towards benefit funds and charitable institutions. The benefits provided reduce existing expenditure on other forms of

relief and a considerable an1ount of the money now spent in this manner is saved or diverted into more effective channels of assistance. Contributions by ernployers constitute a factor in the cost of production but, nevertheless , do not necessarily result in a higher price being charged to consumers, as the cost may be met in various ways. When the employers contribute an equal proportion t o t heir employees they are thereby entitled to and receive an equal voice in the administration of t he scheme, and considerable

improvement in the relations bet ween en1ployee and employer is stated to result frmn such co-opera­ tion. An employer in some cases n1ay contract out of the scheme where he is under obligation to afford his employees equivalent benefits to those provided by the national insurance scheme.

(d) G o v E RNMENT S u BSIDY.

Experience has proved that wage-earners have the greatest difficulty in maintaining, unaided, a system of insurance which requires regular contributions over long periods and, with the object of making such insurance benefits effective, provision is made in most countries for the financial partici­ pation by the Government; the Governl'nent subsidy enabling benefits t o be provided equivalent to the minimum insurance benefits considered necessary. Provision also is made in smne countries for the local government authority to contribute to the schen'le in a sin1ilar n1anner to the central government. The Government contribution is in the forn1 of a fixed subsidy payable each year in respect of each insured person or based on t he total amount of benefits paid. In other cases it

represents a grant of a fixed or variable an1ount each year, whilst in others it covers t he cost of the administration of the scheme. 11he Goverm11ent subsidy is justified by the needs of t he wage­ earner, by the relief guaranteed, and by the fact that it provides an absolute guarantee and security to the scheme. The Government now bears a portion of the loss arising from t he wage-earner's incapacitation for work by the provision of institutional care and of charitable assistance. In some cases it has been provided t hat the Goverm11ent subsidy 1nay be paid in arrears inE;tead of in advance, and this arrange1nent is said to be actuarially sound and avoids the accun1ulation of large reserves from public revenue.

(e) RATE OF CoNTRIBUTION .

The contribution in respect of the insured person is so1netin1es fixed at a uniform rate for .all insured persons, irrespective of their rate of wages, but in other countries it is proportional to wages ; a maximum limit, ·based as a percentage of the wages paid and beyond which the total contribution 1nay not be increased, is generally stated in such circumstances. This percentage varies considerably in the several countries. In s01ne sche1nes all workn1en are assigned to definite wage-groups with a rate of contribution assessed according to their respective groups. This system of grouping insured persons according to wages and of fixing contributions in proportion to the wages earned by each group is adopted in many countries, but has the disadvantage that it is not possible to arrange satisfactory groups without rendering t he system most complex and without consequently increasing the cost of administration very considerably. Experience has $hown that any scheme which provides for a variable premium is unsatisfa ctory, and the tendency is to replace the variable contribution by a fixed prmniu1n independent of wages, although a distinction

is made between the rate of contribution for 1nale -and female insured persons. Where a flat-rate of contribution is applied to all insured persons the rate is based on the 1ninimum wages paid, with a consequent minimum of benefits. In calculating the weekly contribution required, adequate provision must be made for periods in. which insured persons may be unemployed or incapacitated for work and thus unable to pay contributions.

National insurance does not provide, as is the practice in commercial insurance, for a premium varying in accordance with the age of entry into insurance as the administration of such scheme ·would be much more complicated and costly, and may prejudice t he employment of those with higher rates of contribution. It is desirable t hat a Rat rate of contribution should be adopted as such rate would be more equitable at the inception of the schem.e. Where r.amnbership is compul­ sory, individual variation of the rat e of contribution in respect of age at entry into insurance is

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not necessary, as the average age of insured persons is generally maintained under such conditions. The average premium method which assumes a constant age distribution of insured persons, has mariy advantages over other systems. If the total insured persons are to be considered as one group onl.r: for the Comn1onwealth, an average schen1e with a flat-rate of contribution would be

equitable, but, on the other hand, such provisions have been found to be anomalous and inequitable in those sche:r;nes which perrnit insured persons to group themselves into special administrative and financial sections, each with a different experience and with consequent variation in benefits available. Such sectional grouping is inconsistent with the basis of a national insurance scheme aiming at a pooling of risks.

In the British schen1e t he rate of contribution applicable to age 16 is payable for all insured persons irrespective of age at entry into and if a si1nilar basis is adopted in Australia it has been. estimated that the fo llowing weekly contributions will be required in respect of each benefit recon1mended in our First Progress Report:-

Benefit.

,; ..

Sickness, 30s. per week Invalidity, 20s. p er week Maternity, 20s. per week .. Superannuation, 20s . per week Child Allowance, 5s. per

Males.

s. d.

0 6•2

0 2·0

0 1 · 9

0 9·4

0 1·5

Females.

s. d.

0 6 ·0

0 1 •4

1 7•3

:No for the cost of administration is included in the above estimates.

In schemes where a fl at-rate of contribution, based upon an age below 'the average age at entry into insurance, and a uniform scale of benefits are adopted for all insured persons irrespective o£ their age at entry t o the fund, a heavy initial liability is incurred at the inception of the scheme in respect of all persons who on account of age are entitled to certain benefits towards

which they pay an insufficient rat e of contribution. The capital sum required to meet this estimated liability is known as the Teserve value and provision is generally made for ·liquidating this initial liability in a term of years, a proportion of each weekly .contribution being set aside to form a sinking fund fo:r the pu;rpose. The reserve values vary for each benefit and are not required in respect of those persons who enter .into insurance at or below the age for which the flat-rate of contribution has been fixed . It has been st ated that the introduction of a flat-rate

system of contributions providing ror the liquidation of the initial liability makes it essential that such. a system of actuarial reseryes be instituted, ·and this entails considerable record work and administrative cost. Under the approved society method of administration the question of reserve values is heavily con1plicated by transfers from one society to another, and by changes in the status of individual members. It is one of the most complex fa ctors in the scheme as it is

necessary, to calculate the transfer value of every individual. Under a national pooling system the administrative difficulties associated with transfers from section to section would be overcome, lVlr. C. H . Wickens, F.I.A., F.S.S., Comn1onwealth Statistician and Actuary, has estimated that if all insured persons contribute at the rate applicable to age 16, the following U11,iform weekly

contributions. will be required in order to liquidat e the initial deficit within a period of 25 years, 35 years, and 45 years froin t he comm.encement of the scheme:-

Benefit .

Sickness, 30s. per week Invalidity, 20s. per week .. Superannuation, 20s. per week Child Allowance, 5s. per week

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25 Years . .

I J s. d.

0 o · s

0 2·2

1 9 ·4

0 o·7

Males.

---35 Years. 45 Years. s. d. s. d.

0 0 · 7 0 0·6

0 1•7 0 1 · 5

1 5·0 1 2·7

0 0·5 0 0·5

Females.

- ·

25 Years. 35 Year s. 45 Years.

I

. - 1

d. d. I d. s. s. s.

0 0·2 0 0·2 0 o·1

0 o·s 0 0·6 0 o·6

1 9·7 1 5 · 2 1 2·9

It has been suggested that where a compulsory system of insurance providing for a collective national grouping of insured persons is instituted the same necessity for the accumulation of a large reserve Iund does not exist as in a systern of voluntary insurance in which the individual factor is the main consideration. National insurance is a different proposition to commercial

insurance. The national insurance fund is guaranteed by the Government and the annual number of new entrants into insurance is controlled, as all juniors entering into en1ployment are compelled to join the fund, which is thus constantly being rejuvenated and its con1position ana average

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experience is thus fairly constant. As. it may be assumed that a national scheme of compulsory insurance once instituted would become a permanent social institution, it is suggested that it would not be essential to the solvency of the fund that the initial liability be liquidated, but that· the interest on the initial liability must be met annually, and certain reserves against emergency accumulated in order to avoid fluctuations in the rate of contributions. A Government scheme can offer absolute security without the accumulation of a large reserve fund. On the other hand, it is contended that, if adequate reserves are not provided against probable increased risks and

emergencies, a heavy liability may be thrown on future years.

(j) CoLLECTION oF CoNTRIBUTIONs.

The system universally adopted for the collection of contributions is that of deduction from wages at their source, whereby the employer is required to pay the whole' of the joint contribution of the employee and employer, and is authorized to deduct the share payable by the inswed person from his wages. Under such system the onus is thrown upon the employer who is liable if an employee is not insured. This method of collection is simple, inexpensive, and easily administered, the contributions of employers and employed persons being collected in most cases by rrieans of insurance stamps, sold through the Post Office, which m-u,<;t be affixed by the employer to a contribution card issued by the insurance office to each employed contributor. The normal time for stamping cards is at the time when wages are paid. The due payment of contributions is supervised by inspectors appointed for the purpose. At the end of each half-year the insured person obtains the stamped card from his employer, forwards it to the insurance office and is issued with a new card.

Under the approved society system the central administration collects the revenue from the sale of stamps and acts as banker for all financial transactions involved in the scheme, and is, in effect, a bank in which the various approved societies have current accounts. In the case of insured members who are employed in the mercantile marine, the collection of contributions by means of a schedule is favoured instead of the card system. The system of affixing stamps to cards has many advantages over that which provides for employers to pay the contributions by cheque. If a system of administration by approved societies or wage-groups is not adopted the same necessity for a card system does not arise, although this system is valuable for purposes of record. Nevertheless, it is essential that the insured person should have some document which is producible as evidence of title to benefits. During periods of unemployment arrangements can

be made for labour exchanges to regularly record on the insured person's card the fact that he is unemployed and that consequently no contribution is required.

(g) CosT OF ADMINISTRATION.

The cost of administration of national insurance is a very important factor and it is essential that the scheme should be so constructed that the administration costs may be kept to a minimum. The system of administration by approved societies is cumbersome and correspondingly expensive, as the societies' methods of administration, their administrative policies, and their aims vary considerably. Under such system numerous societies may be operating in the same district with numerous competing agents and officers with consequent overlapping and an unnecessary increase in the expense of administration of the scheme.

In England the amount which may be used by approved S()cieties for administration expenses is limited by regulation, and an allowance of 4s. 5d. per annum in respect of each compulsory insured member, equivalent in the year 1924-25 to approximately 9 per cent. of the total income of the scheme, is carried to the administration account of the various approved societies from the

contributions paid. Any deficiency on the administration account, if not otherwise made good, has to be met by a special levy. As the rate of remuneration is fixed at a flat-rate per insured person per annum for all societies there is no great incentive to the societies to reduce their cost of administration much below the fixed allowance, which is mainly absorbed by salaries and allowances to agents. Many approved societies have been able to accumulate surpluses on the administration account, and also to administer their voluntary sections more economically as the result of the inception of the compulsory system. Where the administration of approved societies has been centralized a considerable saVing on administration has resulted therefrom. When a society has reached a certain minimum membership essential for efficient and economical working the addition of further members should involve a lower administrative cost per member, and it has been suggested that for this reason the administration allowance .under an approved societies' system should be on a sliding scale reducing with increasing membership. The cost of the central administration of the scheme in England, including also the cost of audit, valuations, sale of stamps, printing, &c., is equivalent to about 3 per cent. of the total income, and the cost of administration of local insurance committees to 1 per cent. of the total income of the scheme. The total cost of adminis­ tration of approved societies, local committees and central organization combined is therefore equivalent to approximately 13 per cent. of the total income of the scheme, or 6s. 5d. per insured I?erson per annum.

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The cost of administration of national insurance in Australia will be one of the greatest difficulties to be contended with, and considerable modification of the schemes of administration in operation in other countries will be necessary in order to meet conditions in Australia. If a system of approved societies' is adopted, the cost of administration will depend to

a gmat extent on the rate of remuneration which the Government decides to pay for the work done by the societies. The cost of administration of existing mutual benefit societies in Australia is heavy, and varies considerably in the several societies. The total cost of administration of all friendly societies in Australi9, in the year 1924-25 was .£373,546, equivalent to 20 per cent. of the total contributions for the year and to 13s. 10d. per benefit member, having increased from an

average of lOs. 5d. per member in the year 1915. In some societies the cost of administration is as high as 33 per cent. of the total contributions, and equivalent to 20&. 4d. per member per annum. This increase is said to be due to an increase in the remuneration paid to the various officials, to the extension of propaganda work in an endeavour to obtain new members, and to the cost of adminis­

tering the investment of accumulated funds. Although it might be anticipated that the cost of management per member would decrease as membership increased, yet it is found that the cost of management is heavier in the largest societies and has not decreased with an increase in membership. · No particulars are available as to the relative cost of administration of each benefit provided. The Government Registrar has no control over the societies with respect to

extravagance in their management expenses, although the societies must raise sufficient contributions to cover the cost of. management in each year.

Friendly societies in Au'stralia had 5,465 branches operating in the year 1924-25, and a considerable amount of the _ admini'3tration work is being carried out voluntarily, but under a national insurance scheme incorporating an approved societies' system the cost of administration would probably be increased, as the societies would desire to maintain their present organization and consequent management expenses, whilst, in addition, remuneration for all officials would

probably be demanded. It has been stated that in England voluntary service in connexion.with the approved societies' administration of national insurance has almost entirely disappeared. The cost of paying adequate remuneration to the administrative officers of 5,465 branches and 162 head offices of approved societies in Australia would throw a very heavy and unnecessary burden on the National Insurance Fund.

The result of investigations shows that a Government controlled national insurance system can operate more cheaply than other organizations, and if insurance in a unified National Insurance Fund is made compulsory in Australia a considerable saving will be effected in agency and operating expenses. The average percentage of overhead charges for the administration of

Accident Insurance offices in Australia is less than 15 per cent. of the premium income,

and is lower than that of other offices transacting similar business. The cost of administering the Commonwealth Invalid and Old-age Pensions scheme is equivalent to about 1! per cent. and War Pensions to 2 per cent. of the total amount of pensions paid. If the question of cost of administration were the only consideration, then the national insurance scheme would necess9,rily be administered by similar · administrative methods to those by which Commonwealth Invalid and Old-age Pensions and War Pensions are now paid.

(h) PAYMENT OF BENEFITS.

In most countries definite conditions are prescribed which must be complied with before the insured person is eligible for the benefits provided. These conditions vary in the several countries, but in most schemes the insured persons are required to have paid a minimum number of contri­ butions during a qualifying period before being eligible for certain benefits. A waiting period of incapacity is also generally prescribed before the payment of benefit commences, and the period

during which the various benefits are payable in each year is usually limited. In some cases there is a relationship between the number of contributions paid and the rate of benefit payable, but this provision involves an elaborate system of book-keeping. It is essential that the insured person must produce proof as to his eligibility for the benefit claimed; in order to obtain sickness benefits

a medical certificate must generally be produced, as proof of his bodily or mental incapacitation for work. It is usually provided that all benefits to which insured persons are entitled are inalien­ able and cannot be made subject to any charge. Where a system of administration through approved organizations is in operation the payment of cash benefits is made in accordance with arrangements adopted by the various organiza­ tions in the several countries, and the method of payment varies with the type of organization approved. The most common methods are by payment at a branch office of the insurance organiza­ tion, by postal remittance and by payment at the insured person's residence through a duly appointed local agent. Under a system of district administration the method of payment of

benefits can be satisfactorily arranged for each district independently in order to meet local con­ ditions. Under a unified system of national insurance all contributions are paid to a central fund from which all benefits are disbursed.

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( i) INVESTMENT. OF FUNDS.

The investment of accumulated funds requires special consideration, and it is desirable that such funds should be invested in works which will extend the social institutions available to insured rersons and in furtherance of the aims of the national insura:qce scherne. The national schem.es do not interfere in any way with the private funds accumulated by the voluntary friendly societies and yvhich are :invested in accerdance with the rules of each society and with the Friendly

Societies Act. rv.Iany friendly societies invest their funds with their members for the purpose of providing their own hon1os on a systen1 of 1nonthly repayments of principal and interest si1nilarly to a building society. The accumulated funds of voluntary societies have no relationship to the national insurance schem.e, and no attempt has ever been made to utilize them for that purpose, as they belong solely to lhe societies for the purpose of providing for the n1embers of the voluntary n1utuai associations.

Under the national insurance systen1 in England one-half of the sum available for invest1nent, representing the en1ployer's share of the contribution, is invested by the central administration, whil st the reinaining half, representing the insured person's share of the contribution, is handed over to the approved societies if they so desire, and may be invested by them in such securities as they rnay choose ; the · interest earned on such investments being credited to the societies.

Any interest eaJrned by investments in excess of the interest rate adopted as the basis for the scheme is available for an extension of the benefits or a reduction of the rate of contributions.

(J") AuDIT.

It is absolutely essential under any systein of approved -society ad1ninistration that Government auditors should supervise and check the work of the approved societies; this audit inspection of the accounts of nun1erous organizations involves considerable expense, whereas under a Governn1ent unifled scheme the work could be effectively and econo1nically supervised

by the Auditor-General's Departn1ent. Although the Treasury auditors in England have striven for years to obtain in1provon1ent in the bookkeeping methods and standards of approved societies: yet in tho ye?x 1D22 of 4,530 certificates issued by auditorf1 1,810, or 40 per cent., were qualified certificates with certain reservations. It has been stated that with respect to approximately

ha1f the insured population in England the actual an1ount spent in ad1ninistration expenses is not subject to deta.iled audit by the Government auditors. Although the insurance funds are statutory funds and n1ay be used only in accordance with the provisions of the ·Act, yet the audit provisions do not include the power of disallowance .. and surcharge in the case of improper expenditure by approved societies. The present system generally as regards the auditing of branches of friendly societies in Australia is not entirely satisfactory. The branch auditors are appointed by the branch members, and it is not always necessary that the Government Registrar should approve of such appointments. In cases where the Registrar has appointed an officer to

make an inspection of the books and records of a society a very appreciable in1proven1ent has usually resulted. The audit of the central accounts of friendly societies, however, is generally made by qualified accountants.

(Jc) ACTUARIAL VALUATIONS.

Valuations by actuaries which show the results of the working of the scheme are norrnally at three-year-ly or periods on such basis as may be prescribed. No profit

may be n1ade by an approved society, and any surplus found at a valuation is disposed of by increasing benefits or by reducing contributions. Where the approved society method of ad1ninistration is in operation a separate valuation in respect of every approved society must be n1ade, and this throwH a trmnendous volume of work upon the actuarial staff, and is a very costly process when con1pared with the valuation of one centralized fund or of a limited number of district funds. Unless very special reasons arise, it is unnecessary to value the district sections of a unified fund separately, as the benefits are exactly similar for each insured person irrespective of the district in which he resides . Separate valuations are inconsistent with the principle of a unified national systmn gf insurance.

RECOMMENDATIONS.

Your Comn1issioners recommend :-( i) that the total cost of the national insurance scheme shall be met by regular w,eekly contributions payable in respect of each ir..sured person by the the employer and the insured person ;

(ii) that contributions shall not be payable during any period in which the .. insured person is unen1ployed or in receipt of benefit ; (iii) that a fiat-rate of contribution be adopted for all insured males and similarly for all insured females ;

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(iv) that the rate of contribution for each benefit shall be that actuarially calculated for entrants at age 16 together with provision for the accumulation of adequate reserves ; ( v) that the employee's contribution shall be deducted from wages and the

employer's and employee's contributions collected by rneans of insurance stamps to be affixed by the employer to the employee's contribution card ; (vi) that all contributions shall be payable to a central National Insurance Fund; (vii) that the accumulated funds be invested in the extension of social services

available to insured persons ; (viii) that actuarial valuatiotis of the Fund shall be made at regular periods. (ix) that the Fund shall be subject to audit by the Commonv{ealth Auditor-General.

3. ADML'iiSTRA'riON.

The syste.ms of administration adopted for the supervision and control of compulsory national insurance in the various countries differ very widely in accordance with the political org&nization and social institutions of each count ry, but may, however, be generally classified · into two main groups____:_(i) administration through approved organizat ions which are subject to

certain Government supervision, (ii) administration through a cent ral organization ernbracing all the insured persons.

(a) ADMINISTRATION THROUGH APPROVE D ORGANIZATIONS. In n1any countries the national insura:q_ce schemes which have been instituted are not national in the full meaning of that. term, but only to tbe extent that the Government enforces the payment of contributions in respect of those to whon1 the scheme applies. In t he n1ajority of countries compulsory insurance has bee n, brought into effect by t he transformation of voluntary mutual aid into co:rnpulsory insurance and, consequently, t he system of adm.inistration in

operation is based to some extent on the voluntary mutual organizations exist ing at the inception of the Mutual benefit societies have thus been adopted in Inany instances as the main insurance organizations. In other cases they have been adopted as subst itute organizations working in co-operation with a nat io nal organization established for the purpose . Although

subject to Government supervision, yet they are free to control their own a:ff3jrs within prescribed limits ; the· board of management of such societies being in smne systen1s entirely co1nposed of representatives of the societ y's members, or in other countries of representatives of both the employers and insured persons, whilst in other cases represent at ives appointed by the lo cal

government authorities are also included on the executive. In those count ries in which a classification a ccording to trades has been adopted, the societies belonging t o individual business undertakings are the ·only insurance organizations recognized. In Great Britain a system of approved societies was instit ut ed in order to avoid the difficulties associated with the administration of the scheme by existing mut ual benefit societies. Under the approved societies system any existing mutual benefit organizations which have accepted the special regulations, and made their constitution and management conform to requirements, may apply for registration by the State as approved societies in order to obtain

the advantages reserved for such societies. The ·national insurance section of their work is generally kept quite separate from the voluntary section, and the control, m.embership and funds of the voluntary society are not interfered with in any way. Any group of people may fo rm an approved society and apply for registration under the schmne. The different types of organizations which act as approved societies include friendly societies, trade union benefit funds, guild funds, employees' provident funds, establish1nent or shop funds, co-operative societies, and mutual societies formed by life assurance companies. The societies vary in membership from that with over 2,000,000 members to those 'Nith a membership of less than 50.

One of the fundamental principles of insurance is that a required number of people must be exposed to the risk insured against, and a system which provides for sn1all approved societies is contrary to this Although it may be considered desirable that the numerous

existing mutual benefit societies should be incorporated in the national insurance scheme, yet it has been suggested that some of the disadvantages of the approved society systmn would be if it is prescribed that only those possessing a certain mini1num n1embership can b e

eligible as approved societies, as it is the multiplicity of small societies which burden the scheme. On the other however, experience has also shown that there is a danger of creating vested interests which are not of benefit to the national scheme. The segregation of insufed persons into particular societ ies is considered to be inequitable

as there is a consequent variation in the average risk, ·with the result that a preponderance of healthy lives may be grouped together in one society, and a preponderance of unhealthy lives exist in others, and this segregation of n1embership leads to widely divergent rates of benefits.

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A scheme which provides for the selection of n1embers and consequent variation in rates of benefits is incompatible with the essential basis of a national pooling of risks. The approved society system is not national in practice, as equal benefits are not available for all insured persons and an inequality arises in the benefits paid to different persons for the same contribution. It has been authoritatively stated that in a national system of compulsory insurance, with uniform contributions, the provision of uniform benefits for all insured persons is incompatible with administration through approved societies.

Where provision is made for the payment of a flat-rate premium, the members of particular trades may be seriously prejudiced, as the results of actuarial valuations of approved societies generally show that the occupation of insured 1nembers is mainly responsible for the financial divergencies between societies. Nearly two million insured persons in England were unable to participate in the additional benefits available in other societies from the surplus on valuation. The staternent that competition between approved societies is good for the scheme is not supported by experience, which shows that segregation gives some societies an unequal

advantage over others and thus destroys any incentive for competition. Further, no competition can take place wit h respect to certain benefits provided, as other factors determine the cost of such benefits. The great disparity which has arisen between the financial status of the numerous approved societies was not generally anticipated at the inception of the schen1.e, · and owing to the disparities existing between various branches of certain societies the valuation of each society as one complete unit has been advocated strongly. In some cases the various branches of an approved society contribute to a central fund from which the amount of any branch deficiency is drawn, and there is no doubt that the question of inequality of benefits will not arise if all contributions are paid into one National Insurance Fund covering the whole of Australia . .

lVfutual benefit societies which become approved societies usually desire to continue their restrictions on rnen1.bership, even with regard to their compulsory members, and the Government under the approved society system has to specially provide for those who owing to ill-health, age, or to the special provisions of t,he society, are ineligible for membership, and also for the person who does not wish to join any existing society. It is anticipated that a fairly large percentage of wage-earners in Australia would require such arrangements to be made. ·Any person entitled to insurance may apply to become an insured member of an approved society, which may admit or reject such applicant in accordance with its rules, but must not reject an applicant on the grounds of age alone, although those who are likely to be a charge upon the funds are generally excluded by medical examination. The insured person has a statutory right to transfer fro1n one approved society to another, if he so desires, and the burden of proof in any case of refusal of an application to transfer rests upon the society from which the member

wishes to withdraw. The question of transfers involved in a system of approved society administration is very con1plicated owing to the mobility of labour, and renders the administration ·of scattered members a very difficult problem. Where an insured person transfers from one society to another, or even from one branch to another branch . of the same society, he usually loses his rights to additional benefits. Under a national 11nified system the question of transfers from district to district would present no difficulties.

The approved society system involves enormous and complicated administration. Although it was intended at the inception of the scheme that each society should be controlled by its n1embers, that intention has not always been carried out owing to the apathy of members and the size of the societies. Even with provision for self-government the control is, in practice, in the hands of the society's officials, and the question of democratic control is largely theoretical, and owing to the constitution of the societies is inoperative; in the larger organizations especially the machinery for self-government is found to be impracticable. There is also a great diversity of interests amongst the various societies, and, consequently, it is not possible to obtain effective co-ordination in the working of the national scheme on such lines. It has been suggested that the administration of national insurance by mutual associations is more personal and democratic than if it were directly administered by a Government Department, but-experience shows that

the majority of members do nob take any interest in the administration of · their socjety, . and in n1any cases they only know it through the society's local agent. It is extremely difficult for the average insured person to understand the method by which his arrears in contributions, benefits, &c. are calculated. Disputes are continually arising

between the societies and insured persons concerning the question of title to and payment of benefits, and these have necessitated the establishment of elaborate systems of courts of arbitration and of insurance courts·. There are also strong complaints by employers against the amount of clerical work necessitated by the regulations n1.ade under the approved society system, but this has been overcome to a great extent where the control is centered in ·one organization instead of the dual control of approved societies·. In connex1on

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with the arrangements for medical benefit it was found to be in1practicable for the societies to establish a satisfactory basis, and this duty necessarily devolved on the central administration. There is no doubt that the irnpersonal factor in Government administration has many advantages. ·

Experience has proved that national schemes which provide for administration through approved organizations are curnbersome, complex, and not the most satisfactory or desirable basis, as they lead to overlapping, competition, and high ad1ninistrative expenditure. Numerous societies of various types compete with one another in each district, with consequent overlapping in· activities and increase in adn1inistrative It is stated that in England 65 per cent. of the total nun1ber of societies c01npri.se only 2 per cent. of the total nun1ber of insured persons, whilst on the other hand 2! per cent. of the societies incluq.e 76 per cent. of the insured persons. It is stated that there are instances where in one district over 500 societies are operating, some of which have only ten local mmnbers each, whilst in another district there are 100 societies

represented by only one local member each. Smne schemes are said to be overburdened with their relationship to approved societies, and the complexity of schemes has resulted from the attitude adopted towards existing organizations and from attempts to util.ize their machinery. If the administrative difficulties had been fully appreciated at the inception of the various schemes, many unsatisfactory developments would probably have been avoided if a new

administrative system' had been at the inception of the schmne instead of adopting

that of existing organ.izations. · .

As the ·field of application of national insurance is extended, the predominant tendency is to replace such mutual organizations by a systen1 of adrninistration founded on a district or territorial basis ; the district office being responsible for the insurance of all persons liable to insurance who are working in the area administered by the office ; the board of management of which includes, in the 1najority of cases, representatives of the mnployees and the ernployer8. This district organization enables the most effective systen1 of administration to be rnade available in accordance with local conditions, and also results in an average grouping, as it

provides an equalization between the various occupations of insured persons. Where approved societies are not organized on a geographical basis it is i1npossible to ascertain from their records the experience among insured persons in any locality.

(b) l\iuTUAL BENEFIT SociETIES IN oPERATION IN AusTRALIAi The friendly society system in Australia is said to be established upon a sufficiently sound basis to enable it to be utilized, if such were considered the most desirable method of administration and control of a national insurance scheme in Australia. Considerable variation exists, however, in the financial status, scope, and membership of the societies, whilst the extent of their operations also varies appreciably in each State. The method suggested by which friendly societies could be adapted to a national insurance scheme has generally been upon the approved society basis. Smne witnesses have expressed the opinion that friendly societies should be given sole control, or a monopoly, over the ad1ninistration of national insurance throughout Australia, . but this suggestion is not generally supported as the total 1nen1bership of existing friendly societies is at present to only apprnxin1ately 9 per cent. of the total population and to about one-third of the wage-earners of Australia. National insurance is, as its nan1e implies, a matter of national concern and should not be used as a 1nonopoly by any group of individuals, but should ernbrace all in one n1utual association. That which is a national need should be nationally applied and controlJed. One of the reasons advanced in favour of control by friendly societies is that of the local supervision which exists in respect of sickness benefit, which entails the management cost, and also because the administrative

machinery is available at the present time in n1ost of the more densely populated areas of the Commonwealth. Branches of approved societies, however, would necessarily have to be opened in· many populated localities where at present no friendly society is operating, and any provision for the inclusion of additional societies would unnecessarily extend the present undesirable position resulting from the fact that more so cieties are now operating in Australia than the population warrants. Friendly societies wh.]ch have formed approved societies eomprise about

46 per cent. of the insured in England.

At the end of the year 1924-25 there were 162 registered friendly societies operating in Australia, with a total of 5,465 branches. Similar friendly societies operate in n1ost of the States, and although linked together fr9m the point of view of senti1nent, they are in the majority of quite ad.ministratively independent of similar societies in the sa1ne State or in other States ; there being in the majority of cases no Commonwealth controlling body for each society. lVIany are branches of societies which have their overseas and have been built on the peculiar

traditions and political conditions of older countries. The societies are governed in accordance with their constitutions and by their rules, which must receive the approval of the Government Registrar of Friendly and· must be in accordance with the Friendly Societies Act of the

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State. They are all subject to the supervision of the Registrar, and to regular valuations by the .Government Actuary, but the Registrars have generally adopted the policy of leaving the societies as free as possible to carry out their own rules. The Friendly Societies Acts in force in the several States, whilst general]y sin1ilar, yet differ in some very important provisions, and it has been suggested that the application of the friendly society system to national insurance would necessitate an amend1nent of the Friendly Societies Act in each State in order to make an uniform Act for the whole of the Cornmonwealth.

The societies are based on various principles and those principles direct their administration, and their financial position depends to a great extent on the nature of their administration. The general system of administration of friendly societies in each State is fairly similar; the government of the societies usually consisting of a central executive, trustees and directors, which comprise the grand lodge and control the achninistration of the generally, and organize the various broJnches under their control. The financial n1embers who attend the meetings of the various branches elect representatives t o the annual session of the order, which decides the question of alteration of rules, &c., and elects grand lodge officers. The 1nmnbers thus have a direct

representation in the control of the society through the branch meetings, . but this is n1ainly theoretical, as the percentage of 1nembers which attends meetings is small and is diminishing. The rules of some societies are cumbrous and it is said that many members do not understand. t,hem. 'rhe general secretary of the society is usually a full-time officer specially'· selected for the work.

Each branch n1anages its own local affairs, subject to the supervision of the central executive ; in some societies inspectors are appointed to visit and inspect the various branches. The branch accounts are not always kept owing to the difficulty of obtaining a competent local

secretary who is able to devote sufficient tin1e to his duties ; the branch officials being not as a rule trained business men, but in most instances they have volunteered their services in the interests of the society, and do fairly well under the circun1stances. The friendly society system of book.., keeping varies in method and efficiency practic-ally in every society, and it would need considerable re-organizat ion for national insurance purposes, as a uniform system in a prescribed form would be essentiaL ·

The opinion has been expressed that it is unnecessQ.ry that a number of societies, working under different forn1s of managen1ent, and all doing practically sin1ilar work, should be operating in the same district sJnd for the same people, and that mutual benefit societies could am::dgan1ate into one approved organization for the purpose of administering the compulsory national insurance

scheme, whilst retaining their separate entities under the voluntary friendly societies' system. The work could be better and n1ore effectively done by amalgamation, especially in rural districts where branches are often very small and involve unnecessarily heavy expenditure and .administrative work. Experience in other countries has proved that the multiplicity of organizations

does not tend towards efficiency, and consequently steps have been taken in many cases towards arnalgamation ; the consolidation of branches of some societies and amalgamation of others on a geographical basis resulting in 1nore efficient and less complicated adn1inis­ tration. The friendly societies in Australia have already fonned an association in each State for the consideration of general questions, and have also associated in n1any districts for the

purpose of forming dispensaries, and it should be possible for them to co-operate in a similar manner for the purpose of taking part in the ad1ninistra tioi1 of national insurance in the various districts throughout Australia. If total amalgamation in each State for national insurance purposes were impossible of achieven1ent, it has been suggested thsJt many difficulties would be overcorne by an amalgamation of the smaller societies, as careful con1bination of smaller societies ·would produce larger societies with a sickness experience nearer the average for all insured

persons. A systen1 of district co-operation for the purpose of administering national insurance benefits, however, should be possible and is essential to the effective ·and econornical management of any system of administration through 1nutual benefit societies in Australia. It is considered that such co-operation would in no way hamper the various societies' freedorn of control in

the administration of their voluntary benefits, and their present Iner,aber-ship and separate entity with regard to funds would not be encrosJched upon, whilst their special restnctions as to mmnbership of the volun.tary section wou]d be preserved and their work would continue to be supervised by the Government Registrar and Actuary. It has been suggested that by this means the administration of national insurance would work in harmony with the €Xisting friendly society systmn.

Evidence is divided on the question of trade unions being a·ccepted as societies, whilst it .is generally opposed to commercial institutions being peTmitted to take pa;rt.in the control of a natwnal scherne. In the year 1925 there were 743 trade unions .operating in Australia, with a total of 1,651 branches. In smne· unions the State organizations are :Oound together und.er a system of unification and centralized control, there being 382 district organizations and inter­ state groups .of organizations, with a total membership of 795,722. If a -system ·of approved societies were adopted is no reason why trade u;nion benefit ft:Indr and ,establjshrnen.t fu,nds

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should not have the sam.e opportunities as other mutual benefit associations of registering as approved societies for the administration of the national insurance schen1e . In Great Britain industrial assurance societies have become approved societies under the National Insurance Act, but such orga,nizations can only effectively operate in the capital cit ies and bJrge towns in

Australia, and their adininistraJtive cost for industrial assurance business is very heavy owing to the syste1n of collecting pre:miun1s by agents. It has been stated, however, thDJt the success of the scheme in Engla11d has depended to a great extent upon the effective adn1inistration of the industrial insurance cmnpanies as centralized approved soeieties, and which include

of the tot al insured persons.

(c) ADMINISTRATION THROUGH A CENTRAL ORGANIZATION . important schen1es in operation in other countries have a central organization

entrusted with the general supervision and inspection of t he national insurance scherne ; the Rcope of tbjs organization differs widely in the several countries, as it depends upon the political and social systems in operation in each country. Actuarial valuations in other countries have shown that the financial success of the national insurance scherile is to a great extent dependent upon the quality of the administration, and experience has generally shown that a unified

system is' essential to efficiency, with the result that efforts have been 1nacle towards the establishn1ent of a central Government organization which will co -ordinate the work and bring . the several syste1ns together. It is absolutely essential that there rnust be effective governn1ental supervision and control over a national scheme of insurance to which e1nployers, mnployees,

and the Governn1ent are compelled to contribute. It is the duty of the Government to undertake the effective supervision of the compulsory institutions which it has created. The general administration of National Health Insurance in England and vV ales is controlled by the l\1:inister of Health, on whmn has been conferred legislative, administrative,

and judicial powers. The organization includes three departments, viz. :- The Ministry of Health, the Government Actuary's Department, and the Audit Department The central depart1nent's functions are confined to supervision only, and it is said that effective disciplinary control over the various societies is not provided, and the departrnent has no pow-er to enter the

internal affairs of a society. Although model rules are issued to approved societies by the central ad;ministration, their adoption is purely optional, as there is no regulation which enforces such rules as the basis of the rules of all societies. It has been stated that the Government ad:.11inistration under the scheme does not possess adequate powers ""'Thich would en2Jble effective action to be taken in cases where the administration of a soeiety is below the required standard. The medical benefits are administered by special statutol'y committees created for every county and county borough, comprising elected representatives of insured persons, local governrnent authorities, medical practitioners, and others in the area. The Post Office is utilized in the scheme of administration for the collection, through the sale of insurance stan1ps, of contributions

paid, and for the issue of contribution cards in special cases. The unen1ployment insurance schmne and the old-age, widows' and orphans' pensions, however, are adn1inistered directly by the Government and not by the approved society systen1. The national insurance sche1nes instituted in other countries have been in the nature of

experi1nents in social legislation, and their experience has sho-vvn in many cases that a:mendrne11ts in the original system of administration were essential. It has been suggested that considerab1e difficulty will be 1net with in operating national insurance over such large territory with such scattered population as Australia, and that conditions of work, wages, and living are so different

that an entirely different administrative .seherne t o those operating in other countries will be required to 1neet the needs of Australia. Further, that it would be rnore desirable to leave rnutua] benefit organizations free to continue their operations and for the Govermnent to undertake the adn1inistration of N--ational Insurance in a si1nilar n1anner t o that in v;hich the Con1monwealth Invalid and Old-age Pensions and the Maternity are adn1inistered at present., and in the admi nistration of which the mutual benefit societies do not take part, the Post Office being

utihzed for the payment of benefits. The existence of r..'lutual benefit associations must be taken into consideration, and it is sugg-ested that their will be rnore encouraged if they re1nain free to continue their present functions unhan1pered by inclusion in the national insurance sehen1e . Every effort should be 1nade to prevent any injury being done t.o the friendly society system. The

opinion has been expressed that a co1nprehensive systen1 of national insurance will have an injurious effect on existing mutual benefit societies, but although such predictions were 1nade in England, experience has proved that the voluntary societies are now in a better nu1nerical and financial position than they were prior to the inception of the national insurance scheme. N a tiona) Insurance

will only provide certain assured minimum benefits, and not adequate maintenance, and thus wage and salary--earners will enabled tq provide additional benefits by means of voluntary rnutual associations. Such an arrangement for additional benefits rnany advantages. It is estimated t!J_at one-third of the compulsory insured persons in England are voluntary men1bers ot mutual

benefit societies ..

18

The advantages of one administrative organization far outnumber any other considerations. The most desirable, effective and economical system will be attained if a central organization is established to administer a unified National Insurance Fund for the whole of .Australia through district offices. Such administrative authority should include representatives of the three contri­ buting parties, viz. :-the Government, employers, and insured persons, as it is desirable that all

interested sections should take part in the administration of the National Insurance Fund. The various States should be divided into suitable administrative districts, each supervised by a District Insuraltce Office under the control of the Central Administration. Each district organization will be a con1plete administrative unit, but it is essential that insurance funds be pooled for the whole of the Con1monwealth. A local advisory committee of management could be appointed in each administrative district to enable the most suitable administrative arrangements to be made to meet local conditions; such committee being comprised of representatives of the various mutual benefit societies operating in the district, trade unions, medical practitioners, · and other organizations interested in the national insurance scheme. The local agents appointed in the sub-districts or branches would be, in most cases; part-time officers under the direct supervision and control of the

district administration. It will be also necessary to establish an inspection staff to superintend the arrangements for the collection of contributions.

Tn determining whether the clain1ant for sickness or invalidity benefit is incapacitated for work, the adn1inistrative officials in other cGuntries are ordinarily guided by the certificates issued by ·medical practitioners, and suitable arrangements will need to be made with general medical practitioners throughout Australia for the pr.oduction of certificates as to the insured person's

incapacity for work. It is very desirable that such medical certificates should afford sufficient information with respect to the nature and cause of incapacity, as these records vrJl be of great value for statistical investigations which should be instituted in connexion with the scheme. A system of district medical officers is essential to cope with the questions of malingering and

certification, which 1nay seriously affect the solvency of the Fund. Such full-time officers would supervise the arrangements for 1nedical certification in each administrative district, and would be available as medical referees when required; their duties, however, would not include any disciplinary powers or right to treat1nent of patients. It is desirable that the district medical officers should be associated with the I-Iealth Department in order that they may thus establish

co-ordination between the public health services and the National Insurance Fund.

Experience in other countries has shown that it is n1ost essential that the many units administering the various social services should be amalgamated or co-ordinated: In Australia at the present time several more or less independent units have functions which are closely related to the proposed national insurance scheme, and endeavours should be made so far as the Common­ wealth Departn1ents at least are concerned, to co-ordinate them with the administration of the National Insurance Fund. ·

RECOMMENDATIONS.

Your Commissioners recor.an1end :-(i) that the central administration of the National Insurance Fund include representatives of the contributing parties, viz. :-the Commonwealth, employers, and insured persons ; (ii) that a system of district administration be instituted with a district office L11

charge of the administration of the Fund within each district ; · (iii) that a local advisory committee comprising representatives of existing mutual benefit societies, employers' associations, trade unions, medical practitioners and other interested organizations be appointed in each

district ;

( iv) that arrange1nents be made with general medical practitioners for the medical certification of applicants for. sickness and invalidity benefits ; {v) that a district medical officer be appointed to supervise the arrangen1ents for medical certification in each district ; (vi) that efforts be made to co-ordi.Iiate the of the -National

Insurance Fund with the administration of Common·wealth Invalid and Old-age Pensions, Maternity Allowances and War Pensions ; (vii) that the system of labour bureaux recommended in our Second Progress Report be utilized. ior the purpose of certification of unemployment in

connexion with exemption from contributions ; . (viii) "that, wherever practicable. the administrative 1nachinery of existing mutual benefit associations be availed of iu the administration of each district

SUMMARY OF RECOMMENDATIONS.

Your Commis-sioners recommend:- ·

A. "-'-Me'mbershill.

1 48 fi

(i) that the compulSory provisions o'f· the National ·lnslU'ance Fund shall apply to all wage and salary-earners in Australia who are over the of 16 years ; {ii) that the voluntary ,provisio&s ·shall apply -to aill workers on own account and

proprietors of smaill establislunents ; (iii,) -that exemption from the comp\ill.sory ,prov,isions ,shall be gr.anted to members of mutual benefit -ass·ociations whick guarantee, and ta those in employment whlch secur-es, equal benefits to those provided by the

National lnsmance Fund . .

(i) that the total 'Cost of the national insurance scheme shall be met by regular wee.kly ct>ntributtons payiible 'in t'esp'ect of each ;insured person by the 'the " employer , and 'the insured person ·;

·(a) that contributiens .shall not be :lfa.yable .during .any period in whiCh the , insured person is unemploye.d or 1n .receipt of benefit .; (iii) that a of contribution be .adopted .f0r all :insure.d males ·and similarly ail fusurea fem:ales .; .

·the r;ate ·of ,contriib-uti0n ·iox ·be. m.efit shaH ih.e

calculated ;·for entrants at Qge .1:6 together with r:Provision ter tthe accumulation of adequate reserves ; ( v) that the employee's. contribution shall be deducted from wages and the employer's and· employee's 1COlitributidns 1Collected ;·by means of insurance

stamps to be affixed by the employer to the employee's contribution card ; (vi) that all coJ.i tribtifions "be 1)a)rab1e to a central National Insurance Fund; · tvii) .!that --the funds be invested in the extension of social services

. available to insured persons ; (viii) that -actuarial valuations of the Fnnd shall be made at regular periods ; (iX) the Fund shall be subject to audit by the Commonwealth Auditor­ General.

C.-Administration. (i) that the central administration of the National tinslifanc·e 1Fmid include representatives of the contributing parties, ;viz. (_Commonwealth, employers, and insured persons ; ( ii) that a system of district administration be instituted with a district office

in charge of the administration of the Fund within each district ; (iii) that a local advisory committee comprising representatives of existing mutual benefit societies, employers' 8$sociations, trade unions, medical practitioners, and other interested organizations be appointed in each • district ;

( iv) that arrangements be made with general medical practitioners for the medical of applicants for sickness and invalidity benefits ;

( v) that a district medical officer be appointed to supervise the arrangements for medical certification in each district ; (vi) that efforts be made to co-ordinate the administration ·of the National Insurance Fund with the administration of Commonwealth Invalid and

Old-age Pensions, Maternity Allowances, and War Pensions ; (vii) that the system of labour bureaux recommended in our Second Progress Report be utilized for the purpose of certification of unemployment in connexion with exemption from contributions ; (viii) that, wherever practicable, the -admiilistrative machinery of existing mutual

)benefit,a$so}ctations 111e availed of! in 'tb:e administration of each district.

20

In concluding our Final Report, we desire to place on record our high appreciation of the invaluable services rendered by our Secretary, Mr. H. C. Green, of the Con1monwealth Bureau of Census and Statistics, in the conduct of our extensive inquiry, in. collating the immense volume of data submitted, and in the exacting work involved in the preparation of our Reports. Our complex and onerous task has been .very materially lightened by the exactitude and technical knowledge which Mr. Green has readily 9n all occasions brought ·to our guidance in connexion with the many intricacies of the inquiry, and also by the efficiency and resource which he has applied

to the considerable research undertaken with respect to the development of national insurance legislation in other countries. Throughout our lengthy inquiry we have been greatly indebted to him for his unfailing courtesy, tact, and organizing ability. - - · We would also express our appreciation of _the of the Staff of the Commission who have willingly undertaken every task we have placed upon them. · .

. · :We also a·cknowledge our obligations to Mr. ·C; H. Commonwealth Statistician and Actuary, for his very valuable assistance in the preparation of the many actuarial statements required, to l\1r. M. I-Iillary, Pensions Officer, Australia House, London, .for his comprehensive reports on the legislative provision for national insurance in other countries, to the many

witnesses_ who have given .the benefit of their valuable and experience. Throughout the inquiry your Coinmissione:rshave made every effort to obtain all available local evidence · viould- assist in the consideration of the many important social questions referred to _ them> but the fact that detailed first-hand information has not been available concerning the experience of the various national insurance schemes operating in other countries has often

proved a very considerable during the inquiry. .

··· Your Commissioners sincerely hope, however, that, as the result of their labours extending

over a period of three and a half years, their recommendations, which are based on humanitarian lines and .offer such great benefit to the individual and the community and on all of which there has been complete unanir..oJ.ity by your Commissioners, will find a ready acceptance by the Government and people of the Commonwealth.

We _have -the h9nour to -be,

Your Excellency's most obedient Servants,

H. C. GREEN, Secretary,

Melbourne, 11th March, 1927

J. D. MILLEN, Chairman, J.. GRANT, ROLAND F. H. GREEN, W. G. MAHONY, .JOS. FRANCIS,

A. E. GREEN.

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i'rinted ftn d- Published f'o !· the GoVERNMENT of the CoMMONWEALTH of AUSTRALIA by H. J. GREEN, Government · · · ·. Printer for the State of Victo.ria. · ·