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UK insurance industry could save UK ‘billions’ in welfare

July 2009 News

A report commissioned by Alistair Darling, the Chancellor, has outlined ways in which a greater share of unemployment and long-term sickness benefits could be paid by Britain’s insurance companies, rather than the taxpayer.

The report, authored by Aviva chief executive Andrew Moss, suggests that there is “scope for a greater industry role in helping people deal with risks such as unemployment, ill-health and the need for a retirement income or long-term care,” in order to “help reduce pressures on the public purse”.

The paper, which suggests that tax breaks for the British insurance industry could help to fund the plans, has been endorsed by Darling, who co-chaired the committee that put together the recommendations.

It says that through a combination of the state pension and welfare benefits, the government, in effect, provides about 65% of all the insurance in Britain. If a further 5% of those risks were transferred to the insurance sector, the government would save about £17bn a year in welfare payments.

Those same benefits could be provided by the insurance industry with just £9.7bn of new capital – which could be raised by tax incentives encouraging new capital from international financial markets.

The report also warns that the UK tax regime for insurers has proven to be uncompetitive, with a number of large insurers choosing to switch their head offices overseas to benefit from lower rates.

Group risk providers’ trade body GRiD welcomed the report, which spokesman Katherine Moxham said was an “acknowledgement of insurers’ vital role in delivering welfare provision”.

“Employers with a group income protection policy are currently able to work far more quickly than the State to assess an employee’s level of incapacity and to commence a return to work programme,” she said. “This already saves the State considerable burden and could play an even bigger role if tax breaks on employer provision were offered to encourage greater take up.”

Moxham also said that with the introduction of Personal Accounts, this is an “opportune time” to consider some level of compulsion for protection benefits as well as for pensions savings.