New workplace income protection models that combine state and private provision should be developed to address the protection gap facing more than 10 million households says the ABI.
The body has set out a roadmap for a greater role for income protection, saying the same logic for pensions auto-enrolment should be applied to protection delivered through the workplace.
A report published by the ABI this week, Welfare Reform for the 21st Century, found around 250,000 people leave employment each year due to ill health, around 1 per cent of the workforce. Of these, 60 per cent are the main household earner.
The report says 10.8 million households – more than 60 per cent of working families – would see their income fall by more than a third if the main earner had to stop work due to ill health, and they have no insurance to give them a financial safety net if this happens. Of these, 6.6m would see their income fall by more than half without insurance.
The ABI report says: “The challenges of improving working age financial security, while preventing the cost of state support spiralling out of control, are very similar to the challenges that led to fundamental reform of pension provision, and to current policy on meeting the growing costs of long term care. As a nation we have recognised that the model of state provision we have relied on for decades is not economically viable for the future, and new approaches are needed.
“Pension reform is an important first step on that journey, but now we need to continue the journey to address working age income insecurity.
“There is clear potential for the insurance industry to contribute to building and delivering new models combining state and private provision that are fit for the future. In particular we see great potential for greater use of insurance based income safety nets through the workplace as part of the solution.”
“We are engaging with policy makers, employer representative bodies, and other interested stakeholders to develop detailed proposals for a greater role for employers in providing insurance based income safety nets through the workplace.
“Given the context of institutional welfare reforms, the shrinking income safety net available through the State, and the potential for greater use of rehabilitation services to support recovery, it is time to review the role of IP, the interaction between private and State insurance, and the role of employers in building necessary and affordable income safety net solutions.”
ABI head of protection Helen White says: “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.”
Canada Life Group Insurance sales and marketing director Paul Avis says: ”When you see figures like £36billion as the total public sector spend on disability and injury benefits in 2012-13 and with almost 2.5m claiming ESA, then you know that this is a significant, some would say enormous, issue that needs to be addressed. Thinking this through further to next year’s election and addressing the bills that need to be paid from the public sector purse, if all parties are saying the NHS is safe in their hands with no major changes and with the volume of pensions work that has happened, then welfare reform could become the battle ground.
Concerns over the Work Capability Assessment process and the time it is taking, the bad press surrounding the replacement of Disability Living Allowance with the Personal Independence Payment, the small number of people actually on Universal Credit compared to the target and the further delays in the launch of the recently renamed ‘Fit for Work’ services clearly illustrate that this is a challenging area for any Government of any colour.
Hence as an industry we have an amazing opportunity to provide insight, education and inspiration to the debate with group income protection, fully backed by mandated rehabilitation, as the answer to all of these issues. The ABI report cites the Dutch model and the Australian models as ‘International and Alternative Models’ and a combination of these would be the answer in my view. But this needs to be properly debated initially, with the Group Risk industry aligned as to a consensual view as to the way forward. Whatever the outcome of these discussions it will not be quick to implement as both taxation and State disability benefits need to be simplified but at the next AE pension increase some form of GIP for a limited term, which the employer opts in to on behalf of their entire workforce, would seem to be the answer. If not what alternatives are there as the debate now really needs to begin? The ABI report clearly focuses many stakeholders on the need for reform, perhaps revolution, of the State Welfare system for disability and we should all take this opportunity to highlight the pivotal, potential role that GIP can, and most definitely should, play. Industry alignment would make the possible probable in my view.”
– Increase public debate, awareness & understanding of health related income
– Develop a role for all employers in providing access to, and use of, IP
through the workplace
– Build and use evidence on the impact of rehabilitation, and what interventions
have a significant impact
– Explore the potential to expand rehabilitation services to help more
people back to health and fitness – and back to work – faster, as well as
minimising long term health and disability problems
– Ensure the tax and welfare systems provide effective incentives and
rewards for using IP
– Achieve an easy to understand balance between State and private insurance