Charlie Campbell, Policy Adviser, Protection, ABIIt is widely acknowledged that our welfare state is large and costly. But despite its large share of public expenditure the reality is that few understand the limited extent of state support for workers who fall ill. Delivering the message ‘we don’t actually give you much if you fall ill and can’t work, and shortly we’ll give you even less’ is not a message any politician would enjoy giving at the best of times.
The politics of the welfare state can be very emotive and it will remain challenging to navigate the political acceptability of private insurance playing a role where previously the welfare state has been seen as the natural default. This, however, misunderstands the origins of insurance. At the beginning of the last century, it was the mutual and friendly insurance societies who managed voluntary contributions that laid the foundations for the principles of the welfare state - a reminder that insurance has as a founding premise, just like the welfare state, the pooling of resources to provide for those in need. In the provision of welfare, insurance should not be seen as an imposter, but rather a natural partner for Government.
In 2015, the challenge for insurers is raising awareness among individuals and employers, whilst making themselves relevant to the Government’s objectives. With further welfare reductions ahead, greater personal and employer awareness of welfare is needed. But even then the state has to be clear what it is prepared to pay for and insurers will need to articulate what insurance can provide, how it can be delivered and how to incentivise employers to take it up.
There is more. Increasing UK productivity is another key plank of the Chancellor’s long term economic plan. Of which, key areas include infrastructure, transport and broadband, but economic productivity is also impacted by the costs of workplace sickness and absence.
Research by The Centre for Economic and Social Inclusion shows that of the 17million working households in the UK, 10.8million face the risk of their income dropping by more than a third if the main earner stops work for health reasons, even taking into account support they would get from the State. 6.6 million face the risk of their income dropping by more than half.
Currently, we estimate approximately 11% of the working population has Income Protection - bringing savings to the Exchequer in reduced welfare spending and increased tax revenues. Income Protection can help keep more people in work through sickness absence management, rehabilitation and back to work support services. These help employers and employees adapt ways of working to keep a specific individual in productive work and earning an income, contributing to their employer’s business, whilst also paying tax to the Exchequer.
So what are the challenges to increasing the 11% coverage? In short, threefold: incentivising individuals and employers to take up the provision, simplifying how Income Protection interacts with the welfare state and demonstrating to Government the benefits - for both workers and the economy - of more widespread uptake.
A new vision for welfare will emerge over the course of the next six months but it is down to insurers to demonstrate they can play a meaningful part in a new reality that delivers more for workers but costs less for Government.
Charlie Campbell is Policy Adviser, Protection at the Association of British Insurers (ABI)
This blog was was first published on the Money Marketing website.