The Gig Economy — And How Does The Insurance Industry Provides A Coverage For Its Workers

Nowadays, there has been a lot of people globally that are going or being engaged in what we call ‘gig working’. For example, in the U.S. alone, there are more than one-third of U.S. workers — roughly 57 million — participate in the gig economy, and that number is expected to grow to 50% by 2027 as job markets continue to shift to ad hoc contracts from full-time employees. Internet marketplaces and digital businesses such as Uber, Lyft, Freelancer.com and TaskRabbit thrive on this model and even more, traditional employers are increasing their use of independent contractors.

The ‘new normal’

The rapidly developing “new normal” for both employees and employers hinges on finding a happy medium. Independent workers desire some of the traditional security of fulltime-equivalent status while assuming some of their own risk in exchange for flexibility in schedule and work location. Simultaneously, employers enjoy more HR and payroll bandwidth while ensuring that their workforce is protected by workers’ compensation coverage, for instance.

While that all sounds like (and is) a win-win, it is proving difficult — especially for insurers — to develop a new classification for contract employees that provides more traditional benefits and protection such as workers’ compensation, as current policy structures typically rely on fixed information around employee numbers and locations. For example, while some employers like SurveyMonkey provide full benefits to certain contract workers, independent workers are not covered by workplace, minimum wage or safety protections and rarely receive health care, sick days or retirement contributions.

Enter technology, where advances are increasingly seen as the catalyst that will allow employers and insurers to innovate with new products for workers’ compensation and other workforce coverage needs. A few emerging InsurTech startups are already on the case, and others may be driven to bring more offerings to market by emerging catalysts. For example, state and city governments may soon make it mandatory for companies to offer more comprehensive insurance to nontraditional employees.

Proactive legislation

Just to dwell further on this, a good example for this is the growing number of states in the U.S., including Washington and New York, and major cities such as Seattle, have adopted or are considering employment laws to address perceived inequities against independent employees (Seattle’s law is on hold pending a court outcome). Legislation is also being considered to allow portable benefits to following contract employees wherever they are engaged.

Additionally, the Freelancers Union, which represents 50 million U.S. freelance workers, has been pooling the benefit needs of these workers and negotiating with providers to create better conditions for buying health, dental and disability insurance. The union seeks to uncouple benefits such as unemployment compensation and health insurance from permanent, full-time employment relationships.

Digitization solutions

Technology breakthroughs are also helping contract workers gain advances on the benefits front, especially for managing benefits and compensation.

  • Payment processors such as Stripe, for example, is now offering instant pay to solve a common complaint among freelancers around slow compensation.
  • Another one is Trupo, which offers short-term disability insurance, partnered with Reinsurance Group of America in August to introduce a new policy in Georgia. Contract employees pay $20–50 per month to receive up to 50% of their monthly income for 12 weeks if they submit proof from a medical professional that they are too ill to work.

Given the future of work and the growth in the use of independent workers, workplace experts increasingly favor employers enacting innovative and pro-worker benefit policies, including workers’ compensation coverage. They wonder, for instance, if insurers should consider usage-based workers’ compensation to address the needs of a changing workforce and identify which digital systems might help insurers evolve the workplace.

Heavy regulations have complicated the issue of providing workers’ compensation insurance in nontraditional employment relationships, but that’s not stopping the industry from moving forward. CoverWallet, for example, has introduced an application programming interface (API) for commercial lines insurance that offers workers’ compensation insurance among its products. Industries that use these products include many that hire contract workers, including construction, healthcare, agriculture, and manufacturing.

Still, a large number of insurers (including those offering workers’ compensation insurance) are still working to create ideal insurance products for their customers who employ contract employees. Often, insurers do not feel a particular urgency to undertake major changes to the workers’ compensation system because employers are already able to classify contract workers as employees and purchase a workers’ compensation policy. However, larger gig economy employers such as Lyft and Uber need a more comprehensive solution and are beginning to develop their own insurance solutions.

The insurance industry has a critical role to play in the exploding on-demand employment culture, and there is a lot to think about regarding the best ways to insure the gig economy. This is one area where technology and digital innovation are needed, possibly in ways we haven’t even imagined yet. What we do know is that understanding the insured audience is critical to designing effective insurance products, and getting those products to market quickly is critical to success.

Insurers looking to stay on the cutting edge can leverage data analytics and reporting technology, as well as core policy systems, to design and quickly employ new products to support emerging needs, like those of the gig economy. As we often see in this era of digital transformation in insurance, the results of these early efforts will inform the best practices and proven processes of the future.