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Understanding income protection gaps: awareness, behavior, choices

October 31, 2016

As income protection gaps grow, even developed countries need to act to prevent households from falling into poverty after an unexpected loss of income.

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Income protection—the ability to ensure financial security even in the face of crises such as long-term illness or disability—plays a crucial role in our lives and the future of our families. The challenges it brings to governments, businesses and society as a whole are rapidly becoming critical. This is particularly true as demand for government support—the traditional source of relief—is rapidly outpacing supply while at the same time, disability levels are rising as populations age.

This report marks the culmination of the second phase in a three-year alliance between the Smith School of Enterprise and the Environment at Oxford University and Zurich. As a leading academic institution and a global insurer with deep knowledge and experience on risk and risk management, respectively, together we are well-placed to help make society more resilient. That includes finding ways to close income protection gaps.

In the first phase of this project in 2015, we set out to raise awareness and understand the challenges of income protection gaps. Our findings sharpened the focus on a global problem with distinct regional and local characteristics and variations. Given the scale and impact of income protection gaps, it was crucial to gain a better understanding of the behaviors that fuel them and their implications for the public and private sectors. Our previous report in this series focused mainly on the availability of income protection and social welfare—the supply side. This latest study, which marks the second phase of the project, seeks to understand income protection gaps from the demand side—the behavioral and institutional factors influencing decisions on whether to protect income.

We created a highly ambitious survey aimed at individuals in 11 countries across five continents, which explored worker behavior, knowledge and beliefs. Our survey looked at attitudes toward personal finance in general and income protection insurance in particular. It also examined the roles of governments, employers and individuals in providing protection. The quality of the data obtained from the survey responses by the representative samples in each of these countries was remarkable. The survey, to our knowledge, is significant in this field of research. The findings of the survey provide the basis of this report. We place these insights within the broader context of a range of issues, drawing on established research.

This second phase of our project has provided us with a better understanding of factors influencing people’s decisions to acquire income protection insurance, what keeps some demand untapped, and the role of public and private sectors. The next and final phase of our project will investigate potential avenues for how public and private sectors could work together to close income protection gaps. The goal for this third phase, therefore, will be to suggest proposals which achieve a balance between government support, employer provision and personal responsibility.

We believe that collaboration between the public, private sectors and individuals and households is central to finding effective solutions to close income protection gaps. This report reinforces that assertion.

We look forward to intensifying the dialogue with all our stakeholders as this project approaches its conclusion.

Download the report