Income protection gaps: a rising global challenge

Even if the illness or injury is only temporary, it can impair earnings well beyond the time needed for recovery.

Economic hardship can set in when a disabled wage earner and his or her family must get by on less money. This shortfall is often called the ‘income protection gap.’

Zurich and the Smith School at Oxford University have examined the risks associated with this gap and the factors contributing to it. In their study, ‘Income protection gaps: a rising challenge,’ they look at the issues that arise due to disability for individuals, employers, and society as a whole.

Even in countries where governments provide public disability plans, illness, injury – or death – can put people and their loved ones at risk of poverty. The study points out, for example, that one out of five UK households may fall into poverty if an adult wage earner dies. Yet not even one in 20 UK workers have insurance to protect themselves against such risk. And such trends are not only evident in the UK.

The income protection gap is widening in both developed and emerging countries. In established economies, a growing number of workers are employed part-time, or as independent contractors, while in emerging countries, ‘casual’ workers make up a large portion of the labor force; part-time, independent and informal workers are typically excluded from most public income protection plans.

Demographic trends also play a role: As more people work into old age, health challenges are increasing. Governments, meanwhile, are seeking ways to reduce spending, which may include curtailing access to state-funded provisions. If disabled workers tap into retirement savings (assuming they have savings), this could also cause income distress later on and increase the burden on public welfare systems.

Employers must also shoulder the burden of reduced productivity when employees with minor disabilities, lacking income protection, continue in their jobs – even though companies and workers would be better served if disabled employees first regained their health before returning to work.

Analyzing the risks presented by these issues will make it easier to understand challenges that affect us all. Zurich encourages dialogue with governments and employees. By gaining understanding, we may be one step closer to helping individuals and their families to better protect themselves from the risks posed by the income protection gap.