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Income protection gaps: a rising global challenge

September 30, 2016

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

father and son

You think it will never happen to you or your family. Economic hardship can set in when a disabled wage-earner and his or her family must get by on less money.

Even if the illness or injury is only temporary, it can impair earnings well beyond the time needed for recovery.

Economic hardship can set in when a disabled wage-earner and his or her family must get by on less money. This shortfall is often called the ‘income protection gap.’

Zurich and the Smith School at Oxford University examine the risks associated with this gap and the factors contributing to it. In the study, we look at the challenges that arise not just for individuals, but for employers and society as a whole.

The income protection gap is widening in both countries with highly-developed economies and those with emerging economies. In established economies, a growing number of workers are employed part-time, or as independent contractors, while in emerging economies, “casual” workers make up a large portion of the job force. Part-time, independent and informal workers are typically excluded from most public income protection plans. 

Demographic trends also play a role: As more people work into old age, health challenges are increasing. Governments, meanwhile, are seeking ways to reduce spending, which may include curtailing access to state-funded provisions. If disabled workers tap retirement savings (assuming they have savings), this could also cause income distress later on and increase the burden on public welfare systems.

Employers must also shoulder the burden of reduced productivity when employees with minor disabilities who lack income protection continue in their jobs, even though companies and workers would be better served if disabled employees first regained their health before returning to work.

Analyzing the risks presented by these issues will make it easier to understand the issues and challenges that affect us all. Zurich encourages dialogue with governments and employees. By gaining understanding, we may be one step closer to helping individuals and their families to better protect themselves from the risks posed by the income protection gap.