India’s new employment codes present risk and insurance challenges

India in the last half-a-decade has seen a spurt of ‘gig workers’. There have been several societal reforms that have led to the catapulting of the ‘gig economy’. Millennials and Gen Z are opting for more freelancing work with flexible hours, companies are hiring contractual employees for niche projects and the growth of the start-up culture in India has led to more project focused hiring instead of fixed costs associated with full-time employees – in just about half of 2021, India has already seen as many as 21 start-ups enter the Unicorn club in 2021.

Needless to say, these trends have only exaggerated with the pandemic. While companies have adopted the new way of hiring and working, other aspects surrounding traditional employer-employee relationship has not kept pace with reality, such as, social security benefit structure for gig workers, liability of employer for errors and omission of gig workers and in turn the ability of employer to call an insurance policy to pay.

The New Labour Code

India has recently witnessed a stretch of labour sector reforms with four brand new codes subsuming 29 Central labour laws – some of them being century old laws. The four labour codes – Code on Wages 2019, Code on Social Security 2020, Industrial Relations Code 2020 and Occupational Safety, Health and Working Conditions Code 2020 together provide a simplified labour law regime benefitting both employees and employers. The new labour codes also provide a much-needed recognition to ‘gig workers’ and ‘platform workers’

The new Labour Codes of 2019 defines a gig worker as “a person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship”.

The Code on Social Security 2020 for the first time extends social security benefits like maternity leave, disability insurance, gratuity, health insurance, old age protection to the workers in the country’s flourishing gig economy space.

With Indian government grabbing the opportunity to provide statutory recognition to gig workers with these labour law reforms, such move speaks to facts and trend estimates. A recent study by the Boston Consulting Group claims that the Indian gig economy has the potential to serve up to 90 million jobs in the non-farm sectors of India with the potential to add up to 1.25% to India’s GDP through efficiency and productivity gains alone.

On a macro level, the ‘gig’ economy is changing the workforce in India and requires an enabling environment around it.  Relevant measures include promoting better connectivity, cybersecurity, ease of internet access, reliable power supply, lower logistics costs and a framework for adherence to project contracts. Backed by the new labour laws, the requisite measures could help the gig economy provide growing job opportunities to people struggling to find gainful employment.

How will insurance and other liability related issues follow?

In a rapidly changing employer-employee relationship, it is imperative to assess whether the existing principles of tort law, liability and insurance law can be implemented as is or does our jurisprudence need to adapt.

The concept of vicarious liability is hit the closest and hardest and with that all other aspects which were built around this principle - as it is possible for an ‘employer’ to argue that they are merely ‘intermediaries’ and ‘aggregators’ of services and service providers thereby allowing them to skirt liability. In practice, this is potentially a double-edged sword – companies may escape liability, workers may seek higher compensation as direct liability will be increasingly sought, all while making practical enforcement from individuals decreasingly viable.

As regards insurance, there are several risks worth looking at.

In India, most gig workers are excluded from the traditional benefit pool. Traditional insurers rely on historical information, legacy systems and actuarial calculations with long term incentives. With the market moving to a need-based insurance model, insurtech startups are catalysing the development of specific insurance solutions for gig workers. There is a need for on-demand frictionless insurance, bundled or flexible products and speedy recovery processes in personal and auto lines. ‘Bite size’ insurance product has been the talk of the town.

While there is large impact on personal insurance, there is significant impact on commercial insurance as well. As gig workers handle confidential data, there is a greater informational risk, further increasing the need of cyber insurance. Liability insurance also needs to adapt to a more fluid coverage with shifting liabilities. In some instances, coverage may need to extend to meet the protection gap. When business models are changing, insurance policies would need to adapt.

With opportunities galore for new products, India awaits a massive shift both in product design and claims experience!

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