Pricing Unemployment Insurance in Iran

Authors

1 Assistant Professor, Allameh Tabataba'i University

2 MSc in Actuarial Science, Allameh Tabataba'i University

Abstract

Employees are always concerned about losing their jobs, or in other words, losing their income resources. For this purpose, governments require strong protection system to cover these concerns. The Unemployment Insurance (UI) program can be used to achieve this goal.
Based on article five of Iranian unemployment Insurance law, premium is 4% of employee’s salary while employer and government contributions are 3% and 1%, respectively. So, there are great concerns about the financial pressure on the government regarding implementation of this law.
In this paper, we price UI based on the insurance history of employee and the duration of unemployment. We use the Weibull distribution for finding duration of unemployment, and finally equivalence principle is applied to find the fair UI premium rate. Our findings indicate that the UI rate is less than 4% which is lower than current UI rate in Iran set by law. Consequently, government contribution can be eliminated, which will result in reduction of government concerns over the required budget.

Keywords