Private Forms of Unemployment Protection and Social Stratification

in England and Scotland

Alison Koslowski University of Edinburgh, UK

Welfare Markets and Personal Risk Management

in England and Scotland • Part of a wider project, funded by the UK

research council with colleagues Prof. Jochen Clasen & Dr Traute Meyer– To examine the risk management strategies of British

middle/high income households aimed at protection against potential income loss during and after working lives

– To explore households’ planning for contingencies - e.g unemployment, accidents, children’s education, loss of a home, pensions, need for long term care

Research design

• Documentary analysis and mapping exercise of provision over time (1990s-current)

• Quantitative and qualitative methods to investigate behaviour & attitudes– 70 qualitative interviews of relatively high-income

couples with dependent children– Analysis of government funded Family Resources

Survey & Expenditure and Food Survey as well as data commissioned by the Association of British Insurers

Why compare England & Scotland?

• We like to work comparatively (!)• Scotland has devolved powers in some areas

(although not unemployment benefit)• Political attitudes and voting behavior differ:

Scotland is more left-leaning• Different employment and social mix

Forms of financial protection in the case of not being able to work

• State: income replacement benefits• Family & friends: financial transfers, in kind

benefits• Self-reliance: getting another job, reducing

expenditure• Market: private insurances, investments,

savings, housing equity

Social stratifiers & the relative risk of unemployment

• Risk of income loss due to unemployment is not evenly distributed across society. Is income protection similarly distributed?– Home ownership– Occupation & sector of employment– Education– Wealth– Income– Family status– Gender– Age

Private unemployment protection

• Employer protection – on the decrease, but still very much relied upon by those who have it

• Welfare markets– A certain amount of private unemployment

protection is available, although this remains a niche product (Association of British Insurers, 2010). Certain social groups are more likely than others to take out such private insurance products as part of a ‘security package’ against loss of income in the case of unemployment following redundancy and/or illness.

State and private risk management markets in comparison

Source: ABI and HM Treasury, 2009

Forms of private income protection

(for which data are collected in the FRS) • Personal accident insurance• Private medical (unusual in the UK as we have the NHS

which is free at delivery, private care not always better care, particularly for more serious illness)

• Permanent health insurance• Critical illness cover• Friendly society sickness benefit• To provide an income while in hospital• Nursing home/long-term care• Any other sickness insurance• Unemployment/Redundancy

Percentage of households in England and Scotland paying any* insurance premium

(FRS data, weighted)

Logistic regression: Whether households paid insurance premiums, 2004-5

Household paid premium

Odds Ratio

Robust Std. Err.

Z P>|z| 95% ConfidenceInterval

Scotland 0.69 0.03 -8.69 0.000 0..63 0.75

Couple with children

1.55 0.06 10.66 0.000 1.43 1.68

Age 35-44 1.11 0.05 2.24 0.025 1.01 1.21

Age 45-54 1.14 0.05 2.85 0.000 1.05 1.24

Owns outright

1.97 0.09 14.43 0.000 1.79 2.16

Mortgage 2.79 0.13 21.83 0.000 2.54 3.05

Top 40% bhc

3.42 0.12 35.58 0.000 3.20 3.66

N = 24,875; Pseudo R2 = 0.12Wald chi(7) = 3036; Prob > chi2 = 0.0000

Our “core group”: being most likely to have a ‘security package’

• Scotland & England only• 2 Adults & dependent child(ren)• Age of household reference person 35-54• Home owner (either outright or with a

mortgage)• Falling into top 40% of equivalised total

household income distribution before housing costs

Distribution of Policy Coverage Type Amongst Those Households in England and Scotland with a Insurance Policy (%), 1993-2005

(FRS weighted data)

Different policies have different sets of predictors (FRS, 2004-5)

• Personal accident: more likely if Scottish and renting, in bottom 60%.

• Private medical: more likely if English and a home owner in top 40%

• Permanent health insurance: more likely if English, renting and in top 40%

• Critical illness cover: more likely if Scottish, couple with children, age 35-44, mortgage holder and in top 40%

• Friendly society sickness benefit: less likely if Scottish, age 35-44, more likely if home owner (outright or mortgage) and in bottom 60%

• To provide an income while in hospital: more likely if English, less likely if couple with kids and aged 35-44, less likely if home owner, less likely if in top 40%

• Nursing home/long-term care: Very small sample, no coefficient statistically significant

• Any other sickness: more likely if outright home owner• Redundancy: More likely in Scotland, if couple with

children, less likely if own home outright, less likely if in top40%

Barriers to the development and uptake of private insurance

• Macro (why isn’t the industry/state proportion uniform across sectors?):– Institutional path dependence, political and cultural

norms, electorate expectations and values• Micro (what limits individuals’ uptake?):– Perceptions– Affordability/Existing loans or debts– Financial literacy, ‘responsibility’ & apathy– Access– Consumer trust

Key findings so far

• Our theoretically defined core group is empirically confirmed – they are more likely to participate in private welfare markets

• Interesting consistency of income protection behaviour over time

• Participation in various income protection behaviour is socially stratified

• There does seem to be an English/Scottish split

Further analysis plans

• Expand key explanatory variables to include: employment history and occupation.

• Latent class analysis of the most recent data in order to identify sub-types associated with certain risk management behaviours in order to further our understanding of individuals’ risk management behaviour.