Market Overview
Historically, it has been noted that as countries generate more wealth, the young and economically active population tends to become wage-employed, due to migration to urban areas and the growth of companies that generate jobs. In recent years, however, the economic recession that hit the world's largest economies, worsened by the Covid-19 pandemic, resulted in a transformation in the traditional job market, with the population of self-employed workers statistically surpassing that of salaried workers in many countries. This situation is in line with the current demographic transition and technological innovations that have been transforming the way we work. The confluence of these factors creates the so-called gig economy, the ongoing work trend that is shaping the future of work, characterized by flexibility.
This article aims to understand the gig economy in Brazil, taking into account the category of self-employed workers in the country's workforce, and list the opportunities in this sector with regard to the insurance market for gig workers.
Gig Economy in the Brazilian Context
The adoption of new technologies and demographic shifts have significantly transformed the way the world works, and Latin America is no exception. These changes have led to a metamorphosis in the profile of the active workforce in the region, which today is made up of approximately a quarter of self-employed workers (In Brazil, this number is approximately 30 million while around half of the workforce is informal).
When we analyze the factors that led to these situations in the workforce in Brazil, four key drivers stand out:
Demographic Transition
Currently, the majority of the population is composed of Generation Z and Millennials. These generations differ substantially from previous ones. They prioritize factors such as mental health and flexibility when it comes to work, preferring a balance between personal and professional life.
It is no surprise that one of the main factors leading young people to seek self-employment rather than salaried employment is the flexibility of being able to work outside an office at times that best suit their personal commitments. In addition, small companies are able to hire self-employed workers for temporary and seasonal work, at a lower cost compared to hiring with an employment contract.
Platform Economy
Although the emergence of the platform economy dates back to the 1990s, the role of digital platforms in intermediating the relationship between employers and service providers has seen rapid growth in recent years, especially with the advancement of cloud computing and data analysis technologies. It is no surprise that in the last 6 years, the global marketcap of the 7 largest gig platforms jumped to USD 1,3 Tri. In addition to being large, this sector of the economy is very diverse, encompassing different business models and types of services, connecting supply and demand and generating value on both sides of the production chain.
What makes gig platforms so attractive is the low barriers to entry, both on the employer and service provider sides. Providers achieve simplified access to difficult labor markets with low capital investment (in some cases, just having a smartphone is enough to start working), and employers can get a range of solutions for their demands at dynamic prices.
However, it is precisely the absence of bureaucracy that makes the rate of informal employment high among platform workers. Working on a platform does not require an employment relationship, allowing service providers to forgo obligations typically associated with formal employment, such as income tax and social security contributions. If, on the one hand, the absence of bureaucracy makes life easier on both sides of the production chain, on the other it also means that they don’t have access to social security benefits.
Economic Crisis:
The economic crisis of recent years, which led to mass unemployment, has been the main factor driving workers into the self-employed market, with a large proportion going into informal employment. The pandemic scenario, in particular, with the shutdown of production lines, led many companies to lay off their employees. However, while many jobs with employment contracts suffered lay-offs, there was also an increase in demand for delivery services, with the consequent emergence of platform delivery companies.
Uberization of Labour
Although the term 'uberization' is relatively new, popularized by gig work platforms, it reflects a longstanding trend towards more flexible work arrangements with fewer traditional employee benefits. This trend has intensified with the growth of self-employed workers and outsourcing.
In this context, worker security is increasingly seen as a personal responsibility, requiring workers to ensure their own well-being in case of accidents that prevent them from working.
Generation Z grew up with instant access to smartphones and social networks. After witnessing two economic recessions, millennials and Gen-zers have increasingly identified that the traditional job market is no longer able to offer the security and long-term benefits it once did. The recent economic recession during and after the pandemic has corroborated this logic, with millions of workers being laid off from their traditional jobs and having to migrate to on-demand freelance work and informal employment. This new job market, although tantalizing due to flexibility and low qualification requirements, is unable to guarantee workers social security benefits. What usually happens is that professionals in these categories are unable to meet all the requirements to receive insurance benefits due to insufficient contribution time.
The Brazilian social security system, for example, highlights the challenges faced by self-employed workers.. The insurance scheme is concentrated within the Microempreendedor Individual (MEI) program, that is, the worker linked to the MEI through a CNPJ makes a social contribution of 5% of the minimum wage and has access to the right to receive a contribution equivalent to the minimum wage. This system, however, cannot cover all self-employed workers, given that the MEI does not cover all types of occupations currently held and a large proportion of gig workers do not even operate as MEI. Furthermore, within the MEIs the penetration of social insurance is also low (around 40%).
Therefore, the currently existing regulation to safeguard the right to social insurance for gig workers is still limited and full of friction and leaves it up to the workers themselves to decide how much financial stock to save for retirement or in situations in which they are unable to work for a certain period.
However, even though the social security system to protect self-employed workers is still in its infancy, the penetration of private insurance remains low. In Latin America, the insurance sector accounts for only around 3% of the region's GDP, less than half the global average of 6.8%, according to Mapfre. Although this data refers to the insurance sector as a whole, not specifically insurance for gig workers, it already gives an idea of how unprotected workers in the region are.
Navigating the Complexities of Insuring Gig Workers in the Brazilian Landscape
Although insurance coverage for self-employed workers is low in general, the offer of this product to this class of workers continues to be affected by challenges. What makes it so difficult to secure gig workers is, in short, barriers of supply, demand and the general context.
In the first case, there are individual factors that inhibit workers from taking out insurance. The two main factors are income and culture. When it comes to income, gig workers generally do not generate enough income to be able to purchase insurance services. In Brazil, for example, gig workers earn substantially less than salaried workers. To make this situation worse, income is intermittent and vulnerable to market supply and demand conditions, which prevents workers from making monthly contributions.
The cultural problem comes from the difficulty that self-employed workers have in accounting for their income and keeping reliable records of their financial capacity. This ends up leading to the (sometimes false) perception that there is not enough money left to contribute to insurance. Furthermore, workers tend to underestimate or even ignore the effects that any circumstances that would prevent them from working would have on their monthly income.
Moreover, in Brazil, for example, the general population has a knowledge gap regarding financial education and the insurance market and its importance and procedures for taking out policies. The herd effect means that, given that most self-employed workers do not have insurance, the individual imitates the behavior of the majority.
In the second case, supply barriers limit risk coverage for self-employed professionals, i.e insurers are still unable to develop tailor-made products for this important fraction of the working class. Insurance products for workers are generally developed with a focus on those who are salaried; in these cases, employers themselves make periodic contributions, covering all or part of the value of the policies.
The third challenge, referring to contextual barriers, denotes how the procedures for registering and contributing to insurance services are still incipient, discouraging adherence to the product. Workers generally face regulatory frictions that make the process of signing up for insurance expensive and exhausting. This scenario, combined with the perceived challenge of reserving income for insurance, causes paralysis in the adhesion process, considering that the worker feels overwhelmed by having all the responsibility for the insurance contracting procedures placed on them.
Tackling the Hinderers
Insurance for self-employed workers finds opportunities in the current market, given the growing proportion of this class of workers worldwide. In Brazil, for example, it is noted that, although insurance coverage for gig workers is low, what mainly drives workers towards adhering to this service is the possibility of taking advantage of its benefits, especially in the case of accidents that would impede the performance of their duties. It is no surprise that the main reason that leads self-employed workers to join the MEI in the country is still the possibility of obtaining social security benefits from the INSS.
For self-employed workers whose responsibilities require working outside the home, working without any insurance coverage becomes a life or death decision (especially in countries with public safety challenges). In these cases, it is the worker's responsibility to cover their loss of income in emergency situations. The low insurance coverage among gig workers, particularly in Latin America, serves as an illustration of the scenario in which workers have to operate and manage risks in the workplace.
In this context, overcoming the insurance coverage gap for gig workers requires overcoming regulatory, behavioral and product challenges:
Regulation:
The way we see it, the implementation of insurance products for gig workers requires, above all, complementarity between private and social insurance. For these services to complement each other, the process of adhering to social security must be improved in order to reduce friction and reach the growing mass of gig workers.
In the Brazilian case, for example, this depends on improving the points of friction when contracting social insurance. Furthermore, the requirement to have a MEI to join social security limits the participation of gig workers, as not all occupations are eligible for MEIs. This becomes even more worrying when we consider the growth in gig platforms and the emergence of new professions that have not yet been mapped.
In Chile, on the other hand, where the legal framework can be comprehensive to meet the specific needs of self-employed workers, labor regulations already incorporate gig workers into social security programs, so that they can have all the benefits that salaried workers have. This includes not only social security and occupational health insurance, but also health insurance and child care for parents of infants with comorbidities.
The role of regulatory changes in serving the mass of self-employed workers comes not only to ensure this class against moments of economic vulnerability, but also encourages companies (especially the big gig platforms) to offer at least basic benefits of security. that, for the most part, are only available to those who have an employment relationship, such as paid vacation and pension. In the United Kingdom, for example, pressure from labor jurisdictions forced Uber to provide a minimum wage, paid vacation and pension to around seventy thousand workers from 2021, under penalty of compensation.
Product:
For the insurance market for gig workers to scale, insurers need to be able to offer products suited to the needs of this class of workers that consider the specificities of income and seasonality of this market. In addition, insurers must also simplify the eligibility criteria for insurance products and the sign-up process, which is still complex and full of steps.
Among the innovative solutions there is microinsurance, designed to be simpler and easier to access. Most self-employed workers do not have employer-provided insurance options and have a difficult time navigating the complexities of traditional insurance. Furthermore, existing options can provide different types of coverage, such as health and occupational accidents, at much more affordable prices and which do not cause such a large default in the worker's monthly income.
The microinsurance market is gigantic, valued globally at around USD 84Bn in 2023, and has a high potential for growth in emerging markets. In Asia and Africa, there are already successful cases of disruptive microinsurance companies that managed to increase the poor population's access to insurance products. In the case of MicroEnsure, for example, low-cost insurance products managed to reach millions of people in Asia and Africa, with modalities suited to the low wages and cost of living of the local population.
Although this business model is innovative, it is not without challenges. The experiment of MicroEnsure, which used a freemium model in which the insurer offered a free trial of subsidized products to the consumer, did not last long and led to the startup's exit from a large part of its markets of operation, as the customer conversion rate was low and the company was unable to justify the operating costs to the business's investors. In this sense, it is noted that the success of microinsurance companies for gig workers depends not only on being able to reach a broad base of workers but also on understanding the local dynamics of the markets in which they operate and on producing sustainable businesses in the long term.
Furthermore, other insurance innovations for gig workers are on-demand, Pay As You Go (PAYG), and modular insurance. The first two allow workers to pay premiums according to use and need, while the last allows payment only for the type of coverage needed. These three modalities, in general, allow for greater customization of the product suited to the needs of each worker. An app driver, for example, could take out just one personal accident insurance package, depending on their use, instead of needing to navigate through all the clauses contained in traditional policies.
Moreover, by analyzing the existing benchmarks of insurance companies that already offer these products to the market, we see that the sign-up procedure is much easier, as the policies are simpler and more personalized, administrative costs are lower, and claims processing is done in a matter of seconds. For self-employed workers, simplicity and time-saving are essential factors, even more so considering the cultural factor that still prevents the scalability of insurance products among workers, particularly in Brazil.
Culture:
Overcoming the cultural challenge is another factor that still affects the scalability of the insurance sector among gig workers. Strategies to address this issue include educating workers on the importance of insurance in safeguarding their dignity at work. Additionally, they involve aggressive marketing actions on the part of insurance companies and tax incentives by the government, in order to change the view that society still has of insurance, i.e that insurance is a dispensable cost. Tax incentives, in particular, are essential, if we consider the salary gap between salaried and self-employed workers.
Final Thoughts
Although the regulatory environment may seem unfavorable regarding insurance for self-employed workers, the gap between supply and demand, along with the current limitations of the social security system, presents an opportunity for private insurance services tailored to the needs of this workforce.
Historically, regulation precedes innovation, but in this case, we do not see a reformulation in labor and social security laws in the short term that is capable of integrating self-employed workers into the social security system. Although there is a tendency for this to happen in the long term, in the meantime, to guarantee minimum conditions of dignity for workers, we believe that the private sector, especially with the new product types already listed in this article, is capable of filling the supply and demand gap.