Following the extensive research conducted for us by The Centre for Economic and Social Inclusion (CESI) we asked them to do a further piece of work for us, to estimate the potential savings to Government with a greater use of Income Protection insurance.
The CESI findings are very helpful as they demonstrate significant potential net savings for the Exchequer if the use of Income Protection should rise to 13% of the working population or more.
We have shared the figures with Government, the Treasury and the Department for Work and Pensions and will continue to use them to back up our case for an increase role of insurance in future welfare reform. We believe that partnerships between Government and 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.
- Currently Income Protection covers 11% of the working population, leading to Exchequer savings of around £120 million each year.
- Under Universal Credit, Income Protection will lead to Exchequer savings of around £110 million each year.
- If the UK had similar levels of Income Protection use as the USA (27% coverage), this would lead to Exchequer savings of around:
£300 million each year under the current welfare system generating additional savings of £180 million a year; or
£270 million each year under Universal Credit generating additional savings of £160 million a year.
- Reforming the treatment under the welfare system of income from Income Protection claims so that, under Universal Credit, income from individual Income Protection claims are ignored in calculating entitlement to tax credits would lead to an increase in State benefit expenditure (a reduction in Exchequer savings) of around £20 million per year.
- Reforming the welfare system treatment of income from Income Protection claims so that, under the current welfare system, income from Group Income Protection claims were ignored in calculating entitlement to tax credits would lead to an increase in State benefit expenditure (a reduction in Exchequer savings) of £20 million per year.
In both cases, the increase in Exchequer costs would be entirely offset by additional Exchequer savings (from increased income tax and NI revenues) if Income protection coverage increased by 2% or more – i.e. to 13% of the working population having some form of Income Protection cover.
This table shows the projected Exchequer savings from various levels of Income Protection use:
Predicted Exchequer savings with varying uptake of income protection insurance (IP)