Gig economy workers need life insurers to address their needs

By Bob Gaydos

With each passing year, the gig economy continues to grow, with some estimates projecting that by 2027, 86.5 million people in the U.S. will be freelancing. As contract workers instead of employees, most of them won’t have access to any traditional employee benefits. For life insurers, this is a massive opportunity to tap into a new market, because while freelancers hear about health insurance all the time, almost no one is talking to them about life insurance.

But to reach this dynamic segment of the workforce, carriers must devise innovative life insurance policies that align with the particular needs of gig workers. Traditional life insurance policies too often are excessively rigid and fail to address the specific risks and challenges faced by freelancers. Moreover, there is the complicated process of finding the necessary information for underwriting a gig worker, which can deter many freelancers from pursuing life insurance.

Taking all this into account, I would like to propose a new way to package life insurance policies that speak to the needs of gig workers. And that is to combine life insurance with indemnity insurance to provide gig workers with cash benefits in the event of accident or illness. I feel confident in saying that this will give freelancers the exact sort of coverage they need, which no one is currently offering them.

Combining indemnity and life insurance

One of the most challenging issues faced by a gig worker is that even when they have health insurance to cover against an accident or illness, they’re still on the hook for out-of-pocket medical expenses that aren’t included in their health plan. These additional expenses can easily be up to $5,000 or more, putting serious strain on a gig worker’s ability to pay them. Furthermore, gig workers have nothing to cover against loss of income from being unable to work while they recover.

This is why indemnity insurance is the perfect answer. Unlike disability insurance, which requires a detailed assessment of occupation and income, indemnity insurance focuses on future events and requires virtually no underwriting. This makes comprehensive coverage more accessible to gig workers who have variable income or complex employment histories. In addition, by tying the benefit to the severity of the event, policyholders can offset out-of-pocket medical expenses and income loss resulting from accidents or illnesses.

My view is that if a carrier can find a way to combine this sort of indemnity policy with a life insurance policy, they will have a great product that speaks to the specific needs of gig workers. That said, it’s important to understand that the idea behind this approach is not to replace traditional health insurance, but rather to address coverage gaps that exist for certain individuals like gig workers.

As for why this hasn’t been done before, there are a couple of reasons for that. The first is that the carriers that are doing indemnity insurance are not doing life insurance while those that are good at life insurance are not doing indemnity. This means it’s going to take someone on one of those sides to get creative in their thoughts. Who knows, perhaps there’s even an opportunity here for forming a partnership of some sort.

The other reason combining indemnity with life insurance hasn’t been tried before is that, until recently, most indemnity policies were not very good. Benefit payouts were meager and failed to keep pace with inflation. Adding to that, the public perception of indemnity policies was soured in the 1990s when a few now-defunct carriers started selling indemnity policies as if they were health insurance, resulting in a lot of criminal cases. Fortunately, the new breed of indemnity plans being introduced today aim to address these issues.

Using big data for simplified underwriting

The underwriting process hasn’t changed much since life insurance was first invented. You gather all the information you can on an applicant - such as medical, financial and personal data - assess the risk level, and then decide on whether to issue a policy. The only difficult step is finding that data, which typically requires a bunch of medical exams and blood tests that most people don’t want to do. Overall, it can take up to six weeks to underwrite a life insurance policy, and that’s true throughout much of the industry.

Big data changes that by giving a carrier all the information they need on an individual almost from the moment the application is submitted. No medical exams, no blood tests and no scrounging for misplaced documents. Instead, the data is all there from the beginning. This compresses the underwriting process into a few minutes instead of the few weeks it previously took. This is something that many carriers are only just waking up to - the power of big data for expedited underwriting.

That said, a carrier still must find the digital path to the consumer. Because, without that digital path, you have nothing. So my advice to carriers is to work on building up their databases and finding existing digital relationships that they can plug themselves into. Start with the employers, who should, at the very least, have the billing data on their gig workers.

From there, it shouldn’t be too hard to track down gig workers’ medical and financial data. You can also look for third-party providers that are in the business of selling data. It might take a year, it might take two years, but however long it takes you’ll be glad you invested the time in building up your own database.

There’s no question that the gig economy will grow larger with each passing year. As such, there’s much to be gained for any carrier that can successfully tap into this budding market. Doing so though will require innovative life insurance policies that address the specific needs of gig workers. To me, combining indemnity and life insurance into a single policy is exactly what's needed now.

Bob Gaydos is the founder and CEO of Pendella. He may be contacted at [email protected].