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Who Will Cover the Rising Cost of Work-Related Illness and Injury?

As tradition social safety networks come under pressure, who will cover the rising cost of disability and illness in the workplace. 

A recent joint-study by the European Agency for Safety and Health at Work (EU-OSHA) and the International Labour Organization (ILO) estimates that work-related injury and illness result in an annual cost of around USD 3.2 trillion (EUR 2.7 billion), or 3.9% of global GDP1. The equivalent of 23.3 million years of life are lost, of which 67.8 million are due to fatalities and 55.5 million due to disability. 

 

Troublingly, it seems likely that this staggering cost will continue to rise for the foreseeable future. In September 2017, the Lancet medical journal published a massive global study into the prevalence and incidents of 328 causes of disease and injury in 195 countries and territories, the Global Burden of Diseases, Injuries, and Risk Factors Study 2016. This open-sourced project revealed that while mortality rates have fallen and life expectancy increased between 1990 and 2016, this has not been matched by a decline in disability rates, which have been stagnant or even increased for many serious ailments2. The increase is most marked among people between the ages of 40 and 69.

 

The study notes that, “As populations are ageing, and the prevalence of disabling disease generally increases steeply with age, health systems will face increasing demand for services that are generally costlier than the interventions that have led to declines in mortality in childhood or for the major causes of mortality in adults. Up-to-date information about the trends of disease and how this varies between countries is essential to plan for an adequate health-system response.”

 

The Global Risks Report 2017, published by the World Economic Forum, highlighted the challenges facing social protection systems, noting that: “Severely underfunded state social systems are at a breaking point, employers are backing away from traditional employment models and social protection contributions, and individuals once again are shouldering a larger share of the risks.”3

 

Poorly prepared

 

Despite a greater burden of responsibility, the evidence strongly suggests that private individuals are not well positioned to manage this emerging challenge, particularly where it comes to protecting against lost income due to illness, disability or the loss of the family bread winner.

 

Over the course of the last three years, Zurich has worked with the Smith School of Enterprise and the Environment at the University of Oxford. In 2016, a survey of more than 11,000 people was conducted in 11 countries on their understanding of and preparedness for these kinds of income protection risks4. A separate study in the UAE was later conducted.  Overall, the study(s) found that most people underestimate the risks they face, have limited knowledge of the measures available to mitigate them, and had a high expectation that the state would provide a financial safety net if they found themselves unable to work even where governments were reducing social spending and pensions. 

 

Six out of 10 respondents said they had little to no knowledge of how they can protect their income against disability or illness. Many respondents were in a precarious financial situation. A fifth said they could survive less than a month without income and 3 in 5, said that their savings would last less than six months.

 

A separate study by Zurich in the UK found that people were more likely to insure their pets than they were to protect themselves against income loss and critical illness.5 

 

Businesses

 

Nor do businesses seem particularly inclined to take on additional liabilities related to the emerging income protection gaps. While some companies may benefit from offering attractive income protection solutions to employees, a rise in temporary employment contracts in developed countries has been linked to the cost of employers’ mandatory social protection obligations.

 

According to Eurofound, an EU agency tasked with investigating social and workplace issues, more than half of all new jobs created in the European Union since 2010 were temporary.6 In Spain, 18 million temporary contracts were handed out in 2016 compared with 1.7 million long-term jobs.7 More than 20 percent of job contracts in the Netherlands are temporary, while 8-in-10 of all hires in France are reportedly temporary. 

 

The New York Times argues that: “This is the legacy of a painful financial crisis that has left employers wary of hiring permanent workers in a tenuous economy where growth is still weak. Under European labor laws, permanent workers are usually more difficult to lay off and require more costly benefit packages, making temporary contracts appealing for all manner of industries, from low-wage warehouse workers to professional white-collar jobs.”8

 

Across the Atlantic, 15.8% of all Americans were employed in the gig economy in 2015, up from 10.1 percent in 2005. The U.S. economy added 9.4 million temporary jobs over that decade and lost around 300,000 permanent roles.

 

This suggests that asking businesses to play a greater role in providing social protection may have unintended consequences unless proper incentives are put in place.

 

A coordinated response

 

As the Global Risk Report 2017 notes, given these challenges and unwillingness of key stakeholders to finance income protection and social care, “New systems will need to address gaps in social protection across typical life events including periods of education, raising families, work including career gaps, retirement, and later elder care.”

 

Delivering those social care systems, however, will require significant public policy efforts. These may include a shift in state incentives, measures to address the rising cost of health care and social provisions, innovative approaches to measuring and mitigating income and social protection risks, a more flexible approach to workplace protections and retirement benefits that is untethered from individual employers and jobs, and a considerable investment in improving financial literacy and engagement.

 

In the coming weeks, Zurich will propose options and solutions to offset this growing global challenge. Stay tuned by signing up to our newsletter!


Sources

   

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