Employers should be obliged to insure their employees

British workers are insufficiently protected by incapacity welfare finds a major new report on the welfare system by the independent think tank Demos.  Britain came just 8th in a new Index of Financial Protection compiled by the think tank, well below peer nations.

The Index of Financial Protection measures the level of protection employees have in the case of ill health from both the state and private sector.  It found a strong correlation between the level of state and private protection, showing that private insurance can strengthen state support.

The report found that the ‘squeezed middle’ is severely let down by state benefits in the case of ill health. Employment Support Allowance penalises savers and homeowners by means testing for savings above £16,000, punishing good financial planning and leaving middle earners more open to the financial shock in the case of unemployment.

The Demos report shows reform to Statutory Sick Pay (SSP) could cut the number of people moving onto Employment Support Allowance by 43 per cent and save the taxpayer £139 million a year. Around 300,000 people a year flow from SSP to ESA costing government £385 million per year. Currently, only 65 per cent of people on long term sick leave return to work. Evidence in the report suggests that profit incentives for insurance providers encourage targeted and tailored early intervention for individuals on SSP, improving the number of those returning to work within the first six months by as much as 43 per cent.

Encouraging the take-up of personal welfare insurance through National Insurance rebates could save the state around £2.24bn yearly – improving the support for individuals and saving government money.  A person with a pre-disability income of £20,000 could expect to be £2,500 better off with personal welfare insurance and would save the state £7,569 every year. Someone earning £38,000 would save the taxpayer £9,507 per year.

Savings above £16,000 should be exempt from means testing for the first six months of unemployment, to allow the squeezed middle to also benefit from government support that they contribute to through NI contributions.  This would soften the blow that comes with sickness- or disability-related unemployment by allowing people to keep up mortgage payments and incentivise them to get back into work within six months before means testing kicks in.

Employers should be obliged to insure their employees against the risk of accidents, ill health and disability to cut the cost for the state, the employer and to boost the number of those on long-term sick leave returning to work.

Max Wind-Cowie, author of the report says, “Our welfare system is badly broken, and with people living and working longer we need to make sickness and disability support sustainable. The squeezed middle gets a raw deal – contributing to a so-called safety net that cannot protect them from financial shocks. Britain could be more generous to its unemployed and save money by sharing responsibility for incapacity support between the individual, the employer and the state. Personal income protection is mutually rewarding – it serves the interests of the individual and the state. Far from privatising the welfare system, this would allow people who can take more responsibility to do so, and allow the state to target more generous support at those who need it.”

The UK labour force is currently made up of 32m people.  There are 3.6m active income protection policies.  There are currently around 2.61m recipients of state incapacity benefits with around 684,000 new claims each year. Evidence shows that currently employee absence cost employers an average of £517 per employee per year in lost production, SSP and extra overtime costs. Interventions earlier on – before a person has even left work – could radically reduce these costs and ensure that unwell or disabled individuals get the help they need to go on working sooner.


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Employers should be obliged to insure their employees
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