Future of welfare – waking up to the challenge of worker illness

2 February 2015

If an increase of personal responsibility is to take place under the reform of the welfare state then we desperately need to increase awareness of the risk and the extent of support on offer.

How much sick pay are you entitled to from your employer? How long will it be paid for? What happens when that sick pay stops but you still unable to return to work – will state support be enough?

If you are like most UK employees, you do not know, you have not asked and you really doubt you will ever need these questions answered. In a sense you would be right. Only one in a 100 UK workers will be forced to leave employment due to sickness or injury. Yet no matter how healthy your lifestyle and how remote severe illness or injury seems, none of us can be certain – and we are largely ignorant of the risks. When it does happen the consequences can be severe: only one in five ever return to work after six months off.

The Department for Work and Pensions estimate that at any one time 2.2 million people in the UK will be off work for six months. Should you be the main household breadwinner the impact can be terrible: six out of ten working UK households see their income fall by more than a third and four of those see it fall by more than half. So although it may seem a remote possibility, the consequences when it does happen can be dire. With only one in 10 workers are using insurance to mitigate the difference between state provision and their usual pay, most people are doing nothing to manage these risks.

At Reform’s conference on Wednesday, “The welfare state: continuing the revolution”, I will be discussing personal responsibility and the right balance between the State and the individual in a reformed welfare state. I’ve written an article for the conference brochure in which I make the case for insurers partnering the State in the provision of welfare – as it has successfully done in funding infrastructure, and in delivering affordable flood insurance and workplace pension savings. We need to add welfare reform to that list. But it is far from a simple task.

We have a large and costly welfare state and there is public desire for reduced spending, but there is no real recognition of the limited extent of current support for workers who fall ill. Greater personal and employer responsibility in welfare is needed, which insurers can play a role in supporting. But even with an increase in personal responsibility, employers and the State have to be clear what they are prepared to provide. Without that knowledge no one can be expected to manage the risks of becoming solely dependent on state provision as a result of losing their health or job.

Current state provision is not enough and on its own is unlikely to be in the future. This is one challenge which will not go away. Greater roles for the individual, employers and partnerships with the insurance industry should be part of a cross-party consensus to reform the welfare state in a way that costs less and delivers more.

Huw Evans is Director General at the Association of British Insurers (ABI).

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