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Gig Economy Work: Mind the Protection Gaps

EXECUTIVE SUMMARY

Today’s workers increasingly offer their services through gig economy platforms, i.e. digital platforms that match workers to customers on a per-service (“gig”) and on-demand basis. Even
though rapidly growing, the share of primary work (accounting for the main source of workers‘ income) intermediated through digital platforms is still relatively small, accounting for about 3
percent (8 million people)1 and 1.5 percent (7 million people) of the adult population in the US and EU, respectively. In the US and the EU, digital labor platforms generate total revenues of an
estimated US$ 35 billion and US$ 15 billion, respectively.3 Assuming an average commission rate of 20 percent, gig platform worker income in the US and the EU would amount to about US$ 200 billion after commissions.

It is undisputed that work intermediated through digital labour platforms offers major benefits to both workers and their customers. However, social protection coverage of gig economy
platform workers is low. Coverage shortfalls are even more serious in developing economies, where gig workers frequently do not meet eligibility requirements for statutory access to benefits
schemes for available to salaried workers, due to insufficient contribution periods. In most developing countries, self-employed workers are also not covered at all by social insurance systems,
and may only be covered voluntarily and partially.

From a gig worker’s perspective, protection gaps in case of a calamity present themselves as the difference between needed resources (covering unexpected additional expenses or foregone
income, for example) and available resources (e.g. savings and insurance coverage). There is a broad consensus in the relevant literature that income replacement in the event of illness and
disability is the most acute protection gap facing platform workers. With relatively low and irregular income, they are also exposed to financial stress arising from (unexpected) medical
expenses. This problem is particularly serious in countries where access to health insurance is tied to salaried employment.

Most relevant for this book, low and irregular levels of income make it challenging for gig workers to accumulate retirement savings, be it through statutory contributions or individual
savings plans. In many countries, current pension systems are based on formal, regular employment structures and do not adequately capture the increasingly large numbers of those who
fall outside these arrangements. A global survey (encompassing both advanced and emerging economies) conducted by the International Labour Organization (ILO) found that only 35
percent of all gig economy platform workers had a (private or public) pension or retirement plan. Again, the problem is most acute in developing countries, both as a result of institutional
shortcomings and affordability issues.

In Africa, nearly 85 percent of employment is informal. Only around 18% of the population has access to any form of social security. As a result, there is a huge pension protection gap, too,
in Africa. The prevalence of the informal economy hinders the development of private pension funds and in 2017, only 3 countries in the continent offered savings-led pension schemes based on
privately managed funds.6 Furthermore, excluding South Africa, life insurance penetration in Africa remains one of the lowest in the world.

African countries currently experience a lower participation in digital work compared to other emerging countries, but an estimated 4.8 million workers have already performed various
types of gig economy tasks in just seven countries in Africa. Some estimates project that by 2030 the number of platform workers in Africa could reach 80 million.10 In South Africa, for
example, platform work already involves at least one percent of the workforce.11 Overall, in Africa as well, there is a general lack of legislation concerning gig laborers, thus leaving them less
protected than their formal counterparts. Most of the relevant initiatives are left in the hands of private actors.

In light of these massive coverage gaps, global society is faced with the challenge of how to ‘organize’ protection for gig economy platform workers. Options include general taxation,
social insurance and private insurance. Non-contributory, tax financed social protection mechanisms are considered essential to providing at least a basic level of protection for all residents
of a country, including those who are not (sufficiently) covered by contributory social insurance schemes. Social protection is extended independent of employment status. Enlarging risk
pools through social insurance is another way for governments to protect their citizens from hazards that can prove financially ruinous. However, social insurance coverage of platform workers
who are classified as self-employed is limited or even nonexistent in most developing countries. Therefore, private (pension) insurance has an important role to play in complementing or even
replacing public schemes.

Meeting gig worker needs requires traditional insurers to adopt innovation across key links of their value chain, such as embedding marketing activities into platform apps, designing
flexible on-demand coverage that can be activated and deactivated, automating the process through which insurance policies are sold online or via mobile through platform apps,
harnessing the ubiquity of smart-phone based real-time data to address specific underwriting challenges presented by the risk profile of many gig workers, and automating straight-through
mobile processing for basic claims.

Against this backdrop, this chapter offers specific recommendations for governments, regulators, gig platforms, pension providers and insurers.