SMBs need a variety of insurance policies to cover their operations, and overall companies are doing a great job taking care of what’s important. Evaluating what policies their businesses really need, companies are investing in property insurance, general liability insurance, and an assortment of other policies depending on their operations. Despite consistent investments in insurance, however, in recent years insurance companies have seen a shift in how these policies are distributed. Rather than a heavy investment in workers’ compensation policies, a new set of policies have risen to dominance.
What’s behind the fall of workers’ compensation investments? The major reason that fewer SMBs are purchasing such policies is because they’re using more freelance and consultant labor. With the rise of the gig economy, companies cease to be responsible for workers’ compensation payments, and that means they can shift their funds to other types of insurance. Meanwhile, freelancers must choose insurance policies to cover their own operations and carry that financial burden themselves.
The Case For Workers’ Compensation
Workers’ compensation insurance has long been the mainstay of the SMB insurance industry – and it makes sense. There are so many different types of workplace accidents, from heavy machinery malfunctions to repetitive motion injuries. Simply put, if you’re injured in the course of your duties, you’re eligible for workers' compensation. That’s not the case if you’re a freelancer or a consultant working for an SMB. Under those circumstances, you’ll need to have purchased your own insurance policies in advance – specifically disability insurance. Workers’ compensation covers employees of businesses, not the employer, even if you’re self-employed.
Without workers’ compensation, or more accurately, without the status of being an employee, self-employed individuals are on their own. Like union membership, workers’ compensation has historically been one of the most important forms of protection the average worker has. The changing nature of work, however, has done away with this safety net.
New Insurance Policies Prevail
If workers’ compensation insurance purchases are declining, what are SMBs buying instead? A lot of different things. While 69% of SMBs bought workers’ compensation insurance in 2014, only 47% bought it in 2018 – but the insurance market overall has remained stable. Instead, SMBs are purchasing business interruption insurance (an increase from 19% to 28% over the same period), directors and officers insurance, and errors and omissions insurance. Essentially, since the gig economy has led to a major drop off in the number of employees SMBs have, they’re concentrating their insurance policies on their handful of core staff.
In addition to policies focused on leadership, SMBs are also buying more policies related to technology risks. Cybercrime is on the rise and businesses are concerned about their cybersecurity. While they can implement measures like two-factor authentication and provide employees with better training regarding digital security practices, there are also policies committed to protecting businesses from these attacks. Insurers are also building policies around deepfake attacks and ransomware. These are what businesses consider to be pressing concerns today.
A Patchwork Of Policies
As SMBs shift their funds to diversified insurance policies and drop their workers’ compensation plans, and their employees, freelancers are left to fend for themselves, and this presents major financial issues. Sure, freelancers can buy the policies themselves, but most already have extremely narrow profit margins. Pushed out of jobs with more security, freelancers piece together careers. Some even work as consultants in full-time roles that would have once provided benefits, under conditions that are questionably legal. With little recourse and few employment options – unemployment is at a record low – they’re forced to continue working under these conditions. They can buy the policies that offer added protection, or go without and hope for the best.
Whether you’re a freelancer or an SMB, there’s no one policy that will provide everything you need to protect yourself or your employees, but it’s harder for freelancers to cope with this issue than it is for those who would have once employed them. Do we need a different approach to insurance, to employment, or both? There’s no simple solution, but the current state of affairs works well for insurers, who continue to see steady policy purchases, but for workers, the situation is more tenuous and demands consideration of those left out in the cold by changing norms.