Welfare reform – It’s time to think differently

Helen White

21 October 2014

Helen White

An ageing population coupled with a squeezed Welfare Budget is increasing the pressure to reform the UK’s welfare system.

This is why the ABI has recently developed proposals to further welfare reform, that aims to address what the current system does not: raise awareness on what the state will and will not provide, and ways to persuade and help more families to set up their own financial safety net.

Our welfare system is based on a fundamentally flawed assumption that those households that will get little or no state support recognise this, and put in place their own financial safety net. Yet the reality is very different: each year around 250,000 people leave employment due to ill health, approximately 1% of the workforce, with 60% of theses being the main earner.

Latest research for the ABI by the Centre for Economic and Social Exclusion (CESI) shows that 10.8 million households – more than 60% of working families – would get little or nothing from the state and would face a one-third drop in their income if the main earner had to stop work.

The lessons of pension reform have shown very clearly that telling people they should do something because it will be good for them is not sufficient to persuade many to do it.

The insurance industry has a key role to play- through income protection insurance- in improving families’ financial security on loss of income, while helping to prevent the cost of state income support spiralling out of control. However, the challenge here is much greater than the insurance industry alone can overcome.

The lessons of pension reform have shown very clearly that telling people they should do something because it will be good for them is not sufficient to persuade many to do it. Inertia is a powerful force. Innovative solutions – particularly through the workplace – are needed to be effective in changing behaviour.

Our briefing paper ‘Welfare Reform for the 21st Century (pdf 142kB)’ considers the options for reform and sets out five steps towards a new, better welfare state:

  1. Awareness – Increase public debate, awareness & understanding of health related income risks
  2. Access – Develop a role for all employers in providing access to, and use of, IP through the workplace
  3. Rehabilitation – Build and use evidence on the impact of rehabilitation, and what interventions have a significant impact
  4. Incentive – Ensure the tax and welfare systems provide effective incentives and rewards for using IP
  5. Simplicity – Achieve an easy to understand balance between State and private insurance.

Reforming our broken welfare system so that it focusses on those most at need, yet is effective in persuading and helping people to put in place their own financial safety net against unexpected loss of income, is one of the most important issues facing society.

This is why we are working with policymakers, employer representative bodies and other stakeholders in exploring solutions, one of which is an increased role for insurance through the workplace, to closing the gap between expectation of state help and the reality.

Helen White is Head of Protection, Association of British Insurers (ABI).

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