Understanding Income Protection Gaps: Awareness, Behavior, Choices

Read the report to gain a better understanding of factors influencing people’s decisions to acquire income protection insurance, what keeps some demand ‘untapped,’ and public and private sectors’ roles.

Why is income protection such an important issue for businesses?

A study by Zurich Insurance Group, the global insurer, and the Smith School of Enterprise and Environment at the University of Oxford on ‘income protection gaps’ (IPGs) based on a survey of over 11,000 respondents in 11 countries, has found that:

There is significant untapped demand for income protection insurance. Just over half (52 percent) of respondents without insurance say that they would be willing to consider buying it.

Personal experience of IPGs (whether first- or second-hand) is a bigger factor influencing demand than financial literacy. This may upend a number of assumptions about the effectiveness of financial education and literacy campaigns.

Professor Gordon L. Clark, the director of the Smith School of Enterprise and the Environment, University of Oxford points to a barrier in cost perception: “People are very conscious of the value for money in insurance, but the perceived cost is vastly exaggerated”.

“Moreover, people have to be convinced there’s some payoff beyond the automatic deduction from their income.”

Work status also plays a major role:

“Historically, most people were enrolled in life insurance through their employer, and often had no choice in the matter because it was a group insurance scheme.” continues Professor Clark, concluding that the rise of the sharing economy is putting more individuals at risk.

Older workers are more likely to lack — and need — protection. “The most important driver about when people retire, if they have the choice to retire, has to do with what their retirement income will look like” says Clark.

Failure to protect income in the event of disability or illness poses a significant challenge, both in traditional and emerging economies. For families, the impact of illness or disability on income can be devastating. But not only individuals and households suffer. Income protection gaps can also profoundly affect businesses, governments, and the economy as a whole, undermining productivity and eroding social ties.

The need for such protection is acute and rising. In the developed world, demand for government support — the traditional source of relief — is rapidly outpacing supply. At the same time, disability levels are rising due to an aging population, tighter labor markets and improved medical diagnosis, which can confirm illnesses and disabilities such as mental health problems that were not recognized, let alone treatable, in the past.

Mindful of the challenges, Zurich Insurance Group, the global insurer, and the Smith School of Enterprise and Environment at the University of Oxford embarked in 2015 on a longer-term project to study income protection gaps.