Automatic wage indexation, a historic pillar of the social model, returned to the heart of the debates at ACA Insurance Day, held this Thursday 27 November at the Kirchberg conference centre. Although it was not the official theme of the inaugural session devoted to competitiveness, the subject emerged from the discussions as one of the main structural obstacles for companies, particularly in the insurance sector. With a clear dividing line between protecting purchasing power and an inflationary spiral.

It was Octavie Dexant who raised the subject head-on. Referring to the constraints weighing on the sector's competitiveness, the CEO of Axa Luxembourg cites indexation as one of the two major sticking points, along with professional secrecy. “It's complicated to get a group that operates on budgets that are often over three years to understand that things are going to happen in the meantime that mean that the bulk of our costs, [...] HR, can go up,” she explains. The recent example of three indexations in two years is still fresh in everyone's mind. “With a closed budget, it's complicated to operate.”

But beyond internal budget management, indexation would, in her view, have a direct perverse effect on inflationary mechanisms. “When I have an indexation of 2.5%, the next day the garages go up by 5%. So in the end, we're going to have to increase our premiums again because claims are going up. And we're in a vicious circle.” An automatic mechanism which, instead of protecting purchasing power in the long term, fuels price rises in the cost chains.

A mechanism that no longer fulfils its objective

This analysis is taken up with even greater vigour by Michèle Detaille, former president of Fedil and company director. “Apart from a Belgian and a Luxembourger, nobody understands why I have to increase the wages of all my employees when the cost of living is going up,” she says. For exporting companies, the logic becomes difficult to defend. “Given the rise in the cost of living in Luxembourg, are we going to raise the prices of the products you buy from us? An untenable equation in international markets that are ultra-sensitive to price.

But beyond the costs, it is the very effectiveness of the scheme that is being called into question. “This mechanism is perverse because it no longer fulfils its objective,” Michèle Detaille says. Originally, indexation was intended to enable employees to absorb the rise in the cost of living. “For most of us, and I congratulate us on this, it's not really necessary to have this indexation. It's far too much, in my opinion."

There is a realisation on the part of political leaders that this system, unique to two countries in the world, needs to be adjusted.

Michèle Detaille, former president, Fedil

Another collateral effect: the rigidity of the labour market. "Many people say: 'I'd love to change jobs, but [...] everything I earn, I can't find elsewhere. So they stay in a job that may no longer make sense, and are no longer perfectly efficient." Indexation would thus encourage professional immobility, to the detriment of productivity and the adaptation of skills.

However, no brutal overhaul is being called for. Instead, Michèle Detaille points to possible adjustments, citing the Belgian example. "Belgium has just proposed limiting indexation to €4,000 gross salary. The idea is to say: we accept indexation for low salaries, but not for the highest salaries and pensions.” However, she acknowledges that the issue is politically explosive in Luxembourg. "Indexation is a sacred cow for the unions."

The need for calm dialogue

The previous government had already tried to partially contain the mechanism, by limiting the trigger to once a year, a rule included in the current coalition agreement. "There is a realisation on the part of political leaders that this system, which is unique to two countries in the world, needs to be adjusted,” stresses the former Fedil president.

For insurers, the stakes are both macroeconomic and very concrete. The automatic increase in salaries mechanically translates into an increase in claims, and therefore in premiums, which feeds the inflation perceived by households. "We feed the machine, we put a coin in the machine each time, [and] people don't necessarily have a better standard of living the next day,” Octavie Dexant sums up.

The tone used by the speakers remains deliberately measured, however. No frontal questioning of the social model, but a clear call to reopen a space for discussion. "If we want to continue to have a calm social dialogue, we need to be able to discuss all issues, including this one,” Michèle Detaille insists. She stresses the role of intermediary bodies - professional federations, social partners - in maintaining this fragile balance. "Social peace is not given once and for all, it's built every day."