Workers Compensation and the Impact of the Gig Economy
In an article written earlier this year titled, “Assembly Bill 5 and How it Impacts Tech Companies Thriving off the Gig Economy,” we discussed the gig economy and the future implications it would have on businesses. Considering California Assembly Bill 5 and the new tests and classifications for determining a worker as an employee or independent contractor, it can be argued that the rules governing the gig economy have become even more confusing. While we’ve discussed at length the business factors of the gig economy, we have not discussed the impact on the insurance sector. While insurers aren’t rushing to transform their whole business model to accommodate the gig economy, it is still uncertain whether the sector could, or should, cover workers compensation.
The Gig Economy’s Numbers
It is no secret that the rise of tech companies and applications, such as Uber and Lyft, has increased the number of people doing gig or contract work. Recently, the National Council on Compensation Insurance (NCCI) did a close examination of the gig economy to see if the above was true. Some of their findings included:
- In 2019, about 30% of adults in the United States are engaged in some type of informal or alternative work.
- About 4.5% of households earned income from electronically mediated work between April 2017 and March 2018.
- The evidence shows that many Americans have traditional forms of work as their primary source of income but are turning to alternative work options to generate supplemental income.
While the numbers do show an increase in the amount of U.S. workers participating in the gig economy, the important takeaway is that a majority of those people are using it for supplemental income. So, while we are seeing a small increase in the amount of gig jobs, the gig economy has not had a large impact on the number of people engaged in traditional work across the United States. While the main factor attracting workers to gig jobs is the ease of entry, how does this affect the economy and workers compensation moving forward?
The Effect on Workers Compensation
If informal and alternative work starts growing at a steadier pace, taking people out of traditional jobs, the amount of payroll in the workers compensation system will decrease. In an article earlier this year, we discussed the impending recession that many economists are predicting for 2020. Assuming they are correct, a recession would cause a workers compensation leakage. In any recession, businesses look to shed payroll, leading to more workers out of a job and therefore turning to alternative work. If and when the recession ends, businesses and workers may now prefer alternative work, shifting all the pre-recession payroll that went to traditional jobs over to nontraditional work.
The Insurers Response
Although the gig economy has grown, it has not become large enough for insurance carriers to provide new workers compensation coverage options. The lack of large-scale growth has not put enough pressure on the states or insurers to cover gaps in gig workers’ policies. As of now, we do not see any significant changes on the horizon until new laws are enacted to tackle workers compensation concerns. Same goes for terminations, health care and other bargaining pieces for that matter. This isn’t to say that state legislature isn’t already discussing such items, but outside of the classifications within the gig economy, there is nothing yet to note for insurance companies.
Colony West will continue to monitor any and all updates around the gig economy. If you have any questions regarding coverage inclusions for workers in the gig economy, contact a Colony West professional today!