Insurance providers must work harder to develop better and more affordable group income protection products for smaller employers, the Department for Work and Pensions has said.
In an 88-page Green Paper issued by the DWP and the Department of Health (DoH), the government called on the insurance industry to create appropriate products that will get more employees covered by a workplace-based policy, and reduce the burden on the state of long-term sick pay.
The document, called: Improving Lives - The Work, Health and Disability Green Paper, set out various measures to make sure UK employers do more to invest in their employees' health and wellbeing.
According to the paper, the government believes one way to reduce the burden on the state, improve return-to-work statistics and support people after periods of sickness is to give group income protection (GIP) a "greater role to play".
In the paper, the DWP and DoH claimed uptake of GIP was "very low", as only 7 per cent to 8 per cent of the working population has been covered by such a policy.
This was particularly problematic among smaller companies. The document stated: "Coverage is particularly low among small and medium-sized employers; in part, this might be because some insurance providers do not offer products to very small businesses."
Accordingly, the government called on insurance providers to "develop GIP products that are affordable for, and tailored to meet the needs of, smaller employers, including micro-businesses, and for them to raise awareness and make access to such products easier".
The government also believes "cost and awareness of the product are also thought to be a factor" in the low take-up, given the average cost of GIP was approximately £250 to £450 an employee each year.
The paper also stated that employers had to take more responsibility to promote GIP and "invest in their employees' wellbeing".
It stated: "We think GIP policies have a much greater role to play in supporting employers in taking this action and therefore want to explore why larger employers are not making better use of these products, and what would encourage them to do so."
Katharine Moxham, spokesman for the Group Risk Development (Grid), said: "We welcome the Green Paper and are particularly pleased to see that the role group income protection can play in supporting employers' health, wellness and attendance programmes has been recognised.
"GIP enables employers to take a more proactive approach to the health, wellbeing and financial resilience of their employees.
"Both Government and the industry have a role to play in raising awareness of the need to protect income against the consequences of prolonged illness or disability and the importance of the workplace in particular in helping to achieve this."