In spite of the large share of public money spent on the welfare state, few realise state support for workers who become ill is limited and set to fall further.
The welfare state can be an emotive issue and it will remain a challenge to navigate the political acceptability of private insurance playing a role where the state has been the natural default.
However, this misunderstands the origins of insurance. In the early 20th century, it was the mutual and friendly insurance societies that managed voluntary contributions and laid the foundations for the principles of the welfare state. It is a reminder that insurance has as a founding premise of pooling resources to provide for those in need.
In the provision of welfare, insurance should not be seen as an imposter, but as a natural partner for Government. The challenge for insurers is raising awareness while making themselves relevant to the Government’s objectives.
With further welfare cuts ahead, the state has to be clear about what it will pay for, and insurers need to articulate what cover they can provide and how to incentivise employers to take it up.
Increasing UK productivity is another plank of Chancellor George Osborne’s long-term economic plan. Key areas include infrastructure, transport and broadband, but economic productivity is affected by the costs of workplace sickness and absence.
Research by The Centre for Economic and Social Inclusion shows that of the UK’s 17 million working households, 10.8 million 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 state support. Around 6.6 million households risk their income falling by more than half.
Around 11 per cent of the working population has income protection, bringing savings to the Exchequer in reduced welfare spending and increased tax revenues. Income protection can help to keep more people in work through sickness absence management, rehabilitation and back-to-work support services. These can help employers and their staff to adapt ways of working to keep an individual in work and earning an income.
So what are the challenges involved in increasing the 11 per cent coverage? In short, they are threefold:
- Incentivising individuals and employers to take up the provision
- Simplifying how income protection interacts with the welfare state
- Demonstrating to the 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 that they can play a meaningful part in a new reality that delivers more for workers but costs less for the Government.
Charlie Campbell is policy adviser at the Association of British Insurers