By Jason Waldron
Governments, companies, insurers and workers need to work together to close gaps in income protection
Zurich Insurance Group, in collaboration with the Smith School of Enterprise and the Environment at the University of Oxford, has published a new report, ‘Embracing the income protection gaps challenge: options and solutions.’
To explain the terminology, an income gap is the reduction in household income due to the loss or incapacitation of an adult wage earner upon whom the household relies. How do we lessen the impact of this unwanted eventuality?
Regionally, 75 percent of respondents had no provision in place to protect the loss of income through illness, incapacity or premature death. Of those that do, 72 percent received this coverage from their employer.
Living longer allows us to earn more by working longer, but it also poses a risk that individuals will become disabled for at least a part of their career. For instance, if someone is working later in life to save for retirement, then experiencing a loss in income due to disability can set retirement plans back years.
With more than a quarter of the workforce unable to work at some point during their working lifetime, practical steps are needed for how employers and insurers can work together to close income protection gaps, such as:
Employers can include income protection as part of their employee benefits, maximising coverage through auto-enrollment and auto-escalation. For example, in 2013 L’Oreal launched its ‘Share and Care’ programme, which offers a minimum death benefit and 24 months’ salary in the event of disability.
Health check incentives for employees creates awareness and can lead people to have healthier lifestyles, reducing health-related costs on the employer.
Providing employees with financial education so they can make informed choices to protect themselves is a useful step. Digital tools can help, such as apps and games, in delivering content.
In many countries, a basic benefit is provided to workers by default: they must actively elect to opt out of the group scheme. Workers who remain then have the option of purchasing additional coverage or top-ups.
This substantially raises worker participation in employer-sponsored schemes, not only for benefits such as income protection but also for pensions. Auto-enrollment also simplifies financial decision-making, which could explain why such a high percentage of people in the UAE who have income protection, receive it from their employer.
A tool that shows promise in encouraging lasting changes to people’s health habits is a ‘commitment contract,’ whereby an individual agrees to a certain long-term goal that entails a behavioural change (eg, regular gym attendance) or a specific target (eg, predefined weight loss, stopping smoking).
Employees make regular payments, which might be matched by the employer, into a designated fund such as a pension plan. If employees meet their goal, their funds become accessible to them; otherwise they may forfeit their money, which in many cases can to be donated to an outside organisation.
This could be the bridge between health and long-term financial well-being, the design possibilities are as exciting as they are endless. Outcomes for employers could include reduced absenteeism, higher attrition rates, and lower health insurance premiums as the company aims to invest in health, rather than in healthcare.
Companies, however, are not the only stakeholder with an interest in closing income protection gaps. Governments, insurers and workers also have a role to play in creating the appropriate regulatory framework, offering solutions, in engaging with the challenges and in driving the discussion around how best to solve them.
The perfect balance is a fitter, more engaged workforce who are highly committed to both personal and profession goals supported by the peace of mind that income protection can provide.