ProtectionMar 29 2018

Why advisers shouldn't ignore the UK's gig economy

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Why advisers shouldn't ignore the UK's gig economy

Gig economy workers make up a growing part of the UK’s workforce. But as they do not have the safety net of an employer’s benefits package, there is a pressing need for the individuals concerned to take out protection.

In the absence of this protection, a gig worker would have to rely on state benefits should they find themselves unable to work due to long-term sickness or disability. Although the amount paid under Universal Credit will depend on an individual’s circumstances, including age and whether they have any children, the standard amount for a single person aged 25 plus is £317.82 a month. For a couple, where both are aged over 25, they would receive £395.20 a month.

Professional protection

Additional payments will be made where there are children, housing costs and any disabilities or health conditions. However, Ian Smart, product architect at Royal London, says it can leave people with a serious income shortfall. “Universal Credit is not designed to provide claimants with a comfortable lifestyle,” he says. 

“Although most people think of the gig economy as Uber drivers and Deliveroo delivery riders, who would not typically make up a financial adviser’s customer base, a large proportion of it is actually made up professionals and skilled manual workers. We need to get the protection message out to these individuals.” 

A recent report, ‘Good gigs: A fairer future for the UK’s gig economy’, by The Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA), highlights this misconception. It found that just 16 per cent of gig workers were providing driving and delivery services. Instead, the bulk of this economy is made up of individuals providing professional, creative or administrative services (59 per cent) and those offering skilled manual or personal services (33 per cent).

Helping these individuals to protect themselves and their families is essential. While taking out life insurance and critical illness insurance should present few problems, gig workers can run into problems with income protection as a result of their variable income patterns. 

Cover complications

As well as requiring proof of income at point of sale, traditional income protection plans also insist on policyholders providing evidence of their earnings in the event of a claim. 

Stephen Crosbie, protection director at Aegon, says: “Fluctuating income streams can cause problems, but we also find that a lot of people in the gig economy will set up companies to make their earnings more tax-efficient. This reduces their income, making it difficult to get as much cover as they need.”

With a growing number of individuals like this not fitting the traditional product mould, insurers have explored ways to make income protection more relevant to them. For some, this has meant introducing a minimum benefit guarantee. For instance, Royal London guarantees that policyholders will not receive less than £1,500 a month if they have taken out more cover.

Another insurer solution is an income protection product that covers an individual’s expenses, rather than a proportion of their income. An example of this is British Friendly’s Breathing Space plan. This allows the policyholder to take out up to £250 of weekly benefit without any financial underwriting. They can also choose between claim periods of one, two and five years. 

Safety net

Although the expenses-based trend has been driven by the friendly societies, mainstream insurers are also launching products for this market. For instance, Aviva launched its Living Costs Protection last October, allowing policyholders to take out between £500 and £1,500 of cover a month, with the claim payment period limited to 12 months. Julie Higman, income protection product manager at the company, explains: “It is designed to help people who might have trouble evidencing their income. All they need to be able to show is that they work, on average, at least 16 hours a week.”

While more and more products are emerging that meet the needs of gig workers, this group also needs to be aware of the interplay between income protection and state benefits. Mr Smart says under the current rules, any benefit a person receives is reduced on a pound-for-pound basis if they are in receipt of a payment under their income protection policy.

For those taking out a modest level of income protection, the unfortunate consequence of this is that they can end up no better off than if they had not taken out the cover. 

He adds: “It is wrong that the government penalises people who are looking after themselves. If someone is left no better off as a result of this, they might question why they took out cover in the first place.”

Reaching the gig economy 

Given the complexities around protecting gig workers’ income, there is clearly a need for protection advice in this market, particularly in the context of a lack of workplace benefits. But products such as income protection are not well known among such groups, meaning reaching these individuals is a challenge.

Campaigns such as 7 Families are helping to raise public awareness of the financial implications of long-term illness or disability, but take-up of individual income protection remains low. 

Figures from Swiss Re’s Term & Health Watch 2017 show that, although sales of income protection increased by 9.8 per cent in 2016, with just under 118,000 new policies sold, this is just a fraction of the sales seen in other areas such as critical illness insurance (434,000 policies) and term assurance (1.3m policies).

Mr Smart says a promotion piece is required to boost sales further. “The insurance industry needs to reach out to the gig economy, using advertising and advertorials to educate workers about the need for income protection,” he states. 

“Partnering with the platforms they use to source work would be a good way to reach them.”

Freelance platforms such as Upwork, TopTal and Rated People enable individuals to search for gig work, with everything from accountancy to video production available. This makes them an ideal home for both advertising and education around the importance of protection.

A gig product

More work could also be required to make products suit the more fluid income arrangements of gig workers. Although insurers are already developing products in this area, Mike Aldridge, innovation director at L&C, believes they could go further. “There needs to be more innovation,” he says. 

“We are seeing more pay-as-you-go products in the general insurance market. The income protection insurers should develop something similar for people working in the gig economy.”

Last April insurer Cuvva launched a motor insurance proposition allowing drivers to pay for cover by the hour, day, week or month. Motorists simply sign up through its app, enter details of the vehicle they want to drive and the cover term they need, with hourly rates starting from £7.92.

Mr Aldridge says this model could be replicated in the gig economy. By linking to freelance platforms, gig workers could take out income protection to match the duration of the contract they select. This could also be supplemented by other work-related insurances that might be necessary, such as professional indemnity or public liability. 

“Someone could have a long-term product for their living expenses but increase cover whenever necessary,” he explains.

“Insurers could also make more use of technology and all the available data to enable cover to flex to these gig workers’ protection needs.”

Whether or not protection insurers take this giant leap with their product development, the protection needs of this segment must not be overlooked at a time when the gig workforce continues to grow. 

Developing products, and marketing campaigns, that can reach out to them will ensure they have an adequate safety net in place if they are unable to work due to long-term illness or injury.

 

BIG NUMBERS

1.1m

Number of people working in the gig economy in Britain (RSA)

18%

Percentage of the working age population who would consider some form of gig work (RSA)

10%

Or less of the population has individual or group income protection (Swiss Re)

£14,737

Average annual benefit on income protection policies taken out in 2016(Swiss Re)

£449

Average annual premium on income protection policies taken out in 2016(Swiss Re)