November 12, 2018

November 12, 2018 | Risk Pulse


Agile protection for a flexible workforce is becoming a reality for employers

The business case for an agile social protection system fit for a 21st century labor market.

 

The global workforce has changed substantially in the decade since the financial crisis. The fallout from that seismic event, coupled with the Fourth Industrial Revolution, has led to a mass migration from traditional employment to freelance status and the sharing economy.

But what of the long-established forms of social protection which so often go hand-in-hand with the dwindling ‘job for life’ model, particularly in developed economies?

As cohorts of young, skilled and knowledgeable workers – computer coders, IT specialists and more – opt for a more mobile career model, insurance coverage has failed to evolve with this ever-growing agile workforce. So far the system is coping, but only because of the relatively benign economic conditions.

Should we go into a recession, the freelance workforce is going to be the first affected.


As Professor Gordon Clark, Smith School of Enterprise and the Environment at Oxford University, puts it: “Should economic growth decline, should we go into a recession, the freelance workforce is going to be the first affected. They’re going to suffer in terms of welfare, significantly, because they won't have an employer, or transition benefits to fall back on. Should economic growth falter I think we will see the costs really come into play in terms of the impact on the freelance workforce.”

With protection from state-sponsored welfare in decline and often covering only full-time workers, the imperative has shifted to employers to step into the breach. As outlined in the Agile Protection report, produced by Oxford University’s Smith School of Enterprise and the Environment, in collaboration with Zurich, there is a pressing need to design an integrated and agile system of benefits that enables people to develop and reach their potential.

If this is not addressed, we may be facing up to a generation with widespread poverty in old age.


The stakes could not be much higher. “If this is not addressed, we may be facing up to a generation with widespread poverty in old age, even though as a whole the world is getting richer,” says Paolo Marini, Zurich’s Global Head of Customer Management. “The risk is we live much longer than our parents did, only to be poorer and with more debilitating health conditions.”

High levels of immigration have also enabled employers building a more flexible workforce, offering lower wages with limited benefits for the individual. However, hardening global attitudes to migration that are driving social and political transformation, could decrease the supply of labor and ultimately increase competition in the workforce. That provides an opportunity for disruption from forward-looking companies in the private sector who believe that securing the best freelancers or consultants can offer them a competitive advantage.

There are signs that companies are assessing whether the current system offers what they need. When three major US corporations, which do not have healthcare as their core business, simply announced they would team up to provide just that to their combined workforce, shares in traditional health insurance providers declined between six and 10% in a single day. That sounded a siren across the markets that change is coming and signaled that companies won’t necessarily wait for social protection systems to catch up.

“These are such huge shifts that governments take a long time to reform, but if you look at disruptive innovations such as platforms that underpin services in the gig-economy, they will be under pressure to do something because of their disputed status as employers,” adds Marini.

“These companies are well placed to come up with a better, more efficient and less expensive way to provide benefits while still leaving significant responsibility on the individual. After all, efficiency and cost-effectiveness are what they are all about.”

The challenge facing businesses is to balance their twin priorities of keeping costs down (traditionally achieved by reducing headcount) and attracting the knowledgeable workforce they need to thrive in the modern market.

A big change is coming to fit the flexible workforce


In this context reputation matters. Ian Veitch, Global Head of Proposition, Corporate Life & Pensions at Zurich, says: “The perception employees have of a business is significant. Companies have to demonstrate a duty of care. You maximize returns from your workers if they feel good about working for you. Corporate sustainability has gone past being a virtuous box ticking exercise. I think in future it will move on from the big moral questions such as exploitation of the workforce in the supply chain, for example, to also asking how you treat your own employees.”

Finding a solution across the board will require collaboration between businesses, governments and financial service providers. Entities can set themselves apart from competitors, retaining employee loyalty, through customized, portable protection products tailored to the individual.

“We are talking about a combination of legislation and private sector innovation,” adds Veitch. “Technology, coupled with big data, is going to make it much easier to create insurance solutions for people working in the gig economy, where their income stream and individual protection needs are complex. A big change is coming to fit the flexible workforce. A fixed long-term insurance product for all your working life is no longer appropriate. I think we are heading towards an era where the model will be more similar to motor insurance, in which you assess your needs on an annual basis and choose cover which evolves to suit your circumstances at different times of life.” 

Key takeaways: 

  • There is a pressing need for an integrated and agile system of benefits as a higher proportion of the workforce moves towards the freelance or flexible status
  • The freelance workforce will be the first affected in the event of a decline in economic growth
  • The private sector, particularly in the sharing economy, is well placed to develop a more efficient way to provide benefits while still leaving significant responsibility on the individual
  • Companies can create a competitive advantage and retain employee loyalty, through customized, portable protection products tailored to the individual

November 12, 2018

Helping advisers deliver better outcomes whilst avoiding the distractions

Welcome to the latest edition of Risk Pulse. As we close in on the end of a year that can only be described as tumultuous, it’s worth pausing for a moment and reflecting on some of the learnings from our latest AFA Award Winners. This year’s finalists once again proved to be very impressive and whilst a diverse group in terms of style and offering, they all shared a very strong sense of focus. Every year our industry seems subject to ever increasing change, and every year we see the leading advisers are those who have no fear of legislative change (nor any other change for that matter) because they are supremely confident of their ability to adapt.

November 12, 2018

The Cost of Care Part 1 of 3 – The Cost of Cancer

In analysing common methodologies used across the life insurance advice sector, we were able to identify a missing link that could help advice be more tailored and personalised. The Cost of Care whitepaper is an industry first, bringing together detailed research across the broad spectrum of injury and disease. Across three articles, we will delve into three of the biggest cost burdens facing Australians today – Cancer, Heart and Artery and Mental Health.

November 12, 2018

New 2019 Commission Rates Transition - What You Need to Know

Since 1 January 2018, transitional arrangements have been in force that limit the amount of upfront commission paid for the sale of life insurance. An 88% cap of the first year’s premium was the first stage in broader reforms which were passed through parliament as part of the Life Insurance Remuneration Act in 2017.