Social protection in a new world of work – from fragile to agile

Zurich and the Smith School at the University of Oxford recently announced the launch of Agile Protection - a campaign to explore the potential for new protection solutions to meet the needs of an evolving 21st century workforce. We see the world of work undergoing fundamental change, largely driven by technological advance. While there will be challenging impacts, digitalization should be seen as an opportunity to empower, not replace people – offering greater career flexibility and autonomy.

As an insurer, we know that grasping an opportunity also means identifying – and addressing – the associated risks. Social protection systems are therefore a key consideration when it comes to the future of work. Are these systems fit to cover financial shocks in future? We believe current systems are fragile, leaving workers vulnerable. Rethinking them should be a priority for all stakeholders including employers, individuals, governments and advisers.

As a first step, it’s worth looking at changing work patterns. Driven by technology and buoyed by the deregulation of labor markets, the global workforce has experienced a sharp rise in non-standard employment. The UK’s self-employment boom, for example, includes a 100% rise within the advertising industry since 2009. Studies show many workers value the autonomy, challenges, business opportunities, and extra income which self-employment can offer. Younger workers especially value greater work-life balance.

However, today’s social protection continues to largely focus on traditional, full time work. Employment laws secure employer funding of benefits like sick pay, holiday pay, pensions and parental leave for anyone on a permanent contract. This does not cover other workers, who often receive little or no benefit not to mention financial advice or guidance.

For many well educated and well-skilled self-employed, the risk is not unawareness of this status, but misperceiving the risks involved. Our previous project with the Smith School looked at Income Protection Gaps (IPGs) - the difference between what you earned and what you were covered for in the event of disability, chronic illness, or death in a household. We found that 50% of Europeans foresaw their chances of becoming disabled or chronically ill as less than 10% – the reality in the EU is about 25%. This will rise as working populations continue to age.

Those still in traditional work will also be vulnerable. As digitalization creates new skills requirements, workers will tend to switch employers more often – including across geographies – they will also pause to retrain. This is curtailing the ‘one-job career’ model. The average worker in the UK now changes job every 5 years. The trend appears likely to increase – statistics show US millennials stay under 3 years in a job. As yet, frameworks around pension and benefits schemes do not support this new reality.

Some risks for workers have been present for some time but will be amplified in future. One example is mental health. This has been steadily rising as a concern in OECD countries and already costs U.K. business £42bn per year. Likewise, longer lives will mean longer careers to fund them – with mortality and health risks as well as non-standard working rising in older age. A recent study by Zurich found over a third of UK gig economy workers over 55 use it to ease the transition into retirement. Younger workers may also need to take career breaks or work part-time to take on caregiving duties.

Vulnerabilities in the emerging world of work matter to all of us. For individuals, the effects of disability, illness or premature death can be long and severe. More than 60 percent of UK families would see their income drop substantially if they relied on state support alone. In the EU, people who identify themselves as disabled are 15 percent more likely to face poverty. ‘Presenteeism’, where workers do not disclose illness for fear of reprisals or lack of cover, costs businesses billions in lost productivity. For Governments, vulnerable workers mean higher demand for welfare including in later life, as well as lower tax contributions.

Solutions must be found urgently and collaboratively if we are to transform social protection from fragile to agile. It is unrealistic to expect the burden to fall on Governments alone. Public resources are already stretched and will likely be further strained by factors like ageing demographics. Meanwhile, one company can no longer be responsible for an individual’s career-long protection. Insurance providers and advisers have an important role to play - we need to create solutions that move away from products focused on traditional career paths.

Some core elements for solutions are already apparent. Income continuity must be a focus - following individuals across jobs through disability, illness, caregiving leave, and other career breaks. Countries such as Austria already have portable pension schemes, which include independent workers. Meanwhile, technology can also be part of the solution. In our previous work around income protection gaps, we found that experience trumped even financial literacy in spurring demand. Using ‘gamification’ and other technology-driven tools to simulate income interruption scenarios could make a difference. Finally, as the workforce ages, we will need to help older employees remain in work - accommodating a phased approach to retirement.

We can no longer just ‘admire the problem’. We need to establish flexible insurance and associated worker protections. Multiple stakeholders must work together to deliver solutions that address the various needs of our future workforce throughout their working lives. This is agile protection.

This article was originally published in FT Advisor.