Impact of the Gig Economy on the Insurance Market

Dec 19, 2018 | 10 months ago | Read Time: 4 minutes | By iKnowledge Team

As more and more workers get contractual roles instead of permanent employment, the insurance sector has begun evolving to serve these workers as well via simpler, more flexible plans.

If you follow the latest trends in the economy, chances are high that you have probably heard the term gig economy being thrown around quite often. This economy gets its name from the word gig which is synonymous to individual jobs on contract. It is also called as the sharing economy or the collaborative economy. People who are a part of the gig economy are not full-time employees of a company, but they are contractual workers who do their work in bits and pieces – Airbnb and Uber would be two of the best examples of companies who have adopted and embraced the gig economy model.

In a gig economy, workers are treated as contractors and there is no guarantee of a fixed pay every month, but the contractors are paid per job with a certain bonus on completing a set number of jobs in time. The companies tout this model as efficient, highlighting the flexibility to work and being able to choose work hours. But the workers are not nearly as enthusiastic. They claim that they lack fair pay and basic protection such as health and life insurance.

In India, while start-ups have been the earliest adopters of the gig economy, multinational companies are slowly picking up pace and embracing the idea of having contract workers for jobs that can be outsourced. Project-based contracting also keeps the operating expenses low as hiring someone full-time for a project would shoot up the payroll expense by a significant margin. However, when you’re working on a contract basis, employers are not required to provide you with basic facilities like insurance, and they do not either.

This is creating a gap where a large section of the workforce does not have any coverage at all. A lot of insurance companies still do not have coverage for any mishaps that occur at work, and hence, it creates a very risky situation for people who have to travel or work in high risk situations under contract but with no security.

In most cases, members of the gig economy also must get life insurance on their own as they don’t come under traditional labour laws. These laws were designed with full-time employment in mind but with economic slowdown and the recent economic depression, part-time contract-based jobs have been on an all-time high because of the flexibility it offers.

The main change in insurance policies that is required to insure these people is of the exclusion type and not the inclusion type. What that translates into is that contract-based jobs can be of varied risk factor – from walking a puppy every evening to driving cabs for Uber in an accident prone zone. Thus, insurance companies will need to account for every scenario and exclude only super high-risk situations rather than having a set list of conditions where the insurance policy will kick in and exclude every other scenario. The demand for this kind of insurance policy is very high among tech companies who are the primary growth drivers of the digital and gig economy.

The uncertainty about the coverage conditions of traditional insurance policies has become a major reason of stress for people working in the gig economy. For them, the market is just too volatile to invest in a long-term insurance plan only to find that the next gig they are at is probably not covered by their current insurance plan. Worse still, many of them find out only after a mishap has happened.

In order to deal with this, insurance companies are now coming up with pay as you go or monthly subscription based short term insurance policies that can be changed or cancelled at any time depending on the user’s preferences. Insure-as-you-go models are slowly gaining popularity and the insurance industry has limited time to either adapt or be side-lined as new start-ups are coming up with unique algorithms that bypass the entire underwriting model of traditional insurance.

Companies such as Aegon Life are increasing their focus on the non-salaried section classes. By deliberately making plans simpler and easier to understand, as well as focusing heavily on the online channel, the company seeks to attract non-salaried sections who wish to insure themselves via a pull model, as opposed to the traditional push model which focuses on corporate clients and group insurance in general. Simple, non-complicated plans such as the Aegon Life’s iTerm Insurance Plan have been created to serve a broader cross section of society. Beginning at only Rs 388** a month, a variant of the plan provides coverage for till the staggering age of 100. Moreover, the ability to change the plan amount depending on life stage enables flexibility, allowing the insured to increase coverage in case of marriage and the birth of children.

All in all, simpler, more flexible insurance plans will be the key to help increase India’s overall penetration of insurance, and ensuring that individuals across different employment types are able to get coverage.

II/Dec 2018/4694

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