Unemployment funds coped through coronavirus pandemic despite record growth in number of applications and claims expenses
Due to the coronavirus pandemic, unemployment funds faced one of the tightest situations in their history in spring 2020, when a very large number of people were made redundant or were laid off within a very short space of time. Growth in the applications for benefits was exceptionally sharp and rapid, and claims expenditure also reached an unusually high level. Both unemployment funds and the FIN-FSA reacted to the unprecedented situation by swiftly adjusting their practices.
The number of initial applications in some funds rose to even 20 times their normal level. Overall, the situation was worst in April when the funds received over 80,000 initial applications, compared with an average of some 10,000 in April of the two previous years. The situation developed favourably in the summer, and the number of initial applications in July was down to 34,000, which was nevertheless around twofold compared to the previous years. The number of initial applications remained above the previous year’s level throughout 2020.
The overall number of applications began to decline in July 2020, although it remained at a very high level all year long. The high number of applications indicates that re-employment after becoming unemployed is slow or only partial (lay-offs and part-time work).
As the number of applications mounted, the processing times in many funds lengthened very quickly, and it proved impossible to keep apace with the statutory processing deadlines in the exceptional situation. The capacity of the funds to make decisions on benefits proved to be a bottleneck. No sanctions were imposed for exceeding the maximum processing times since the funds took significant steps to reduce processing times, and it is unlikely that any sanctions would have made a difference to processing times in the crisis conditions.
Although processing times of benefit applications increased considerably compared to normal circumstances, they did not, on average, become as long as during the financial crisis in 2009. At their longest, processing times reached 80 days. By late autumn 2020, processing times had become considerably shorter after the funds made efforts to speed up processing.
How did the FIN-FSA and the funds respond to the changed situation?
The FIN-FSA adjusted the supervision of unemployment funds after the crisis began by focusing resources on the acute situation and putting inspections and other major projects concerning the funds on hold. Unemployment funds were divided into three risk categories determining the reporting frequency for each fund. The placement of each fund in the categories was assessed regularly. Funds involving the highest risk reported to the FIN-FSA on a weekly basis on their processing status, liquidity and actions and remained in active contact with the supervisor in general. Funds of the second risk grade reported in two-week intervals and funds of the third grade whenever anything significant happened in their situation. At the end of November 2020, there were no longer any funds in the highest risk grade. Enhanced supervision of unemployment funds continued throughout 2020 and was still active in January 2021, when this report was written.
Processing of applications for benefits is manual labour, and unemployment funds took rapid steps to cope with the influx of applications. Among other things, they recruited a significant number of additional staff, adjusted their procedures and increased automation at various stages of the processing of benefits.
The coronavirus pandemic was also reflected in significant growth in claims expenditure. The impact of the crisis is also demonstrated by the fact that expenditure began to increase steeply in spring 2020, even though it usually tends to decrease in the spring. When the crisis began, the financial position of the funds was mainly good or excellent and, from a financial perspective, their operational capability was maintained throughout the crisis.
Government support measures helped funds stay afloat
In 2020, several fixed-term amendments were made to legislation on employment protection, aimed at alleviating the position of the newly unemployed. Furthermore, the conditions of eligibility for earnings-related unemployment cover were eased by shortening the required time in employment. This resulted in additional work for the funds, however, as the number of applications surged.
In spring 2020, the situation of the unemployment funds looked bleak, mainly with regard to financing and the countervailing fund. Government support measures, however, provided significant help: the government granted additional funding for funds’ administrative and claims expenditure, which improved their financial position significantly and reduced the need to raise membership fees for 2021. The government also supported the Employment Fund by exceptionally contributing to the funding of lay-off daily allowances. The liquidity of the Employment Fund also remained solid thanks to proactive measures, including borrowing. In addition, support measures allocated by the government to various areas of society helped the funds indirectly.
Benefits paid by wage-earners funds and their administrative expenditure are funded by a contribution paid by the government and the Employment Fund as well as contributions paid by the members. In normal circumstances, member contributions account for 5.5% of the funding of earnings-based daily allowances. The assets of the Employment Fund are collected through statutory unemployment insurance contributions levied from wage earners and employers. Benefits paid by entrepreneur unemployment funds and their administrative expenses are funded by a contribution paid by the government as well as member contributions.