As shoppers start to trickle back and shuttered stores re-open for post-pandemic business, much is being made of the need to ‘build back better’ – to ensure that global supply chains are more sustainable, fairer, and less environmentally damaging.
Leading those keen to promote their sustainability credentials are fashion brands – according to a recent Vogue article, “Sustainable fashion is a term that’s increasingly used (and overused, often with little to back it up) these days.”
Campaigns for ethical clothing are far from new, but the climate crisis and COVID-19 pandemic have given the movement new impetus. “Cutting CO2 emissions, addressing overproduction, reducing pollution and waste, supporting biodiversity, and ensuring that garment workers are paid a fair wage and have safe working conditions, are all crucial to the sustainability matrix,” notes Vogue.
Even before the COVID-19 pandemic swept across the world, life was hard for the estimated 60 million low-paid employees – mostly women – working in the global textile, garment, and footwear industries. In countries with the lowest rates of pay, such as Bangladesh and Cambodia, garment factory workers earn as little as € 54 a month, which less than a third of the living wage. Arbitrary lay-offs, exploitation, and hazardous conditions are routine. Few workers have any form of health or income protection insurance. The infamous 2013 Rana Plaza disaster was just one example of garment workers’ precarious existence.
“Workers are typically on low wages and have few savings,” notes a 2020 report from Traidcraft Exchange. “Production countries have limited to non-existent social security systems to provide unemployment benefits, employment injury insurance and healthcare. Factory owners are not always obliged to contribute to social security systems.”
The COVID-19 pandemic has only served to exacerbate these challenges. According to the ILO, the global garment trade virtually collapsed in the first half of 2020. In some cases, imports from Asia’s garment-producing countries to major buying countries dropped by as much as 70 percent. Millions of workers were laid off in Asian production centres. “Workers have few options besides resorting to debt when they face sudden losses of income,” say Penelope Kyritsis and Genevieve LeBaron in a recent blog. “In fact, chronic indebtedness was commonplace for garment workers even before the pandemic. Many workers now face high levels of interest with little prospect of earning enough to repay loans.” Even though some countries such as South Africa operate an Unemployment Protection Fund, such cover is the exception rather than the norm.
“Those who have experience working with garment workers at factories around the world know that these jobs are unsustainable to begin with,” says Audrey Stanton of The Good Trade. “In 2020, many factories in places like Bangladesh have ignored COVID-19 safety protocols and continued to operate at full capacity.”
For migrant workers – who make up a large part of the garment workforce – the problem is even more acute. A 2014 report from the Clean Clothes Campaign featured Hnin Weh, a 23-year-old migrant from Myanmar working in Thailand. She had no social security or health insurance, and had to pay for her own medical expenses, including maternity leave and the cost of having her baby in hospital.
The ILO’s recent call to action “aims to catalyse action from across the global garment industry to support manufacturers to survive the economic disruption caused by the COVID-19 pandemic and to protect garment workers’ income, health and employment.” Given the scale of the challenge, the responsibility of global brands to ensure that garment workers throughout the supply chain are protected by insurance – including health, accident, business interruption, income or remittance protection – seems irrefutable.
With the post-pandemic focus on social as well as environmental responsibility, leading fashion brands serious about sustainability have an opportunity to pressurise garment factories to provide adequate insurance and risk management for their workers.
A pre-pandemic study by AXA into social protection for garment workers in India underlines the strong case for health insurance. In one large clothing factory in Bengaluru, for example, workers ranked hospitalisation at the top of their list of worries, with medical expenses for elderly relatives and children also prominent. However, digital exclusion is still a challenge – all those interviewed had to enlist the help of their children to set up a mobile account which links their phone number, bank account, and state ID number to ensure payments through the Employees' State Insurance Corporation (ESIC) scheme.
Other findings suggest that providing ESIC medical facilities in or near to the garment factories is a significant motivating factor. Higher health service provision within factories enabled workers to access medical care and engage in preventive healthcare, while one respondent stated that having an annual eye check-up in the factory helped, as she would never otherwise consider going for one. However, when the ESIC facilities are further away from the garment factories, workers with limited access to transport are less likely to use them.
In Bangladesh, a Health Insurance for Garment Workers (HIGW) pilot project in 2015-2016 provides some valuable insights. The employer-sponsored health insurance (ESHI) scheme aimed to increase health service coverage, improve disease prevention, provide immediate access to health information and introduce efficient cost controls. A scalable salary-based premium was linked to a private health service provider to create a sustainable health financing mechanism. One significant feature of the project was that the insurance company and the garment industry split the benefits and losses equally. An evaluation concluded that workers in the scheme increased their access to professional healthcare by more than a quarter, compared to those who were uninsured, and out-of-pocket expenses for insured workers also decreased.
Despite a daunting series of obstacles, one country which has partially succeeded in providing health insurance for garment workers is Cambodia. In 2009, the NGO Groupe de Recherches et d'Échanges Technologiques (GRET) launched a pilot project with the aim of scaling up to a national scheme – the National Social Security Fund (NSSF). For a premium of US$ 1.60 per worker per month – half of which was paid by the factories – the insurance provided comprehensive coverage of medical services from basic primary healthcare to complicated surgery through contracted public health facilities in and around Phnom Penh. After four years, more than 7,000 workers were covered in 10 factories who were then transferred to the NSSF when the pilot finished. In January 2016, the Prime Minister of Cambodia issued a sub-decree to launch a mandatory social health insurance (SHI) for formally employed workers.
Other recent initiatives include the ‘Weave Our Future’ Foundation funded by French multinational retail group Auchan in Bangladesh to ensure coverage of medical expenses related to common illnesses. 20,000 workers in the textile industry have access to medical services and hospitals run by health NGO GK Savar, as well as weekly medical consultations.
Whilst health cover remains the number one concern for garment workers, it is clear that other microinsurance products – including business interruption (for employers), income protection (for workers) and remittance-linked cover (for migrant workers) – are essential risk management tools. As Democrance CEO and Founder Michele Grosso says, for most migrant workers “the inability to send money due to unforeseen circumstances such as illness, unemployment or even death is the number one worry.” With hundreds of thousands of migrant workers employed in Asia’s textile sector, that’s a big potential market for insurers.
Business interruption and income protection insurance are notoriously difficult to price, but public-private partnerships (PPPs) could be one way forward. In Laos, for example, up to 17,000 garment workers laid off due to the pandemic each received two months’ emergency income support worth K 900,000 (approximately US$ 100) in a scheme funded by BMZ, developed with technical support from the ILO and administered by the Lao Social Security Organization (LSSO).
However, one major source of concern is the millions of so-called ‘hidden’ garment workers – those who work from home and who cannot even access the most basic income protection or compensation schemes available to factory workers. A coalition of Asian NGOs and trade unions say the crisis has revealed the scale of informality and subcontracting, including to home workers, that sustain global garment supply chains. Home workers have not received payments for work already performed prior to lockdown and, as the most vulnerable workers in the chain, are facing extreme hardship.
In India alone, the garment sector employs at least 12 million people in factories, but millions more work from home – mostly women and girls from minority or marginalised communities. “Home workers are last in line to benefit from any help,” Janhavi Dave, of HomeNet South Asia told Reuters soon after India’s first national lockdown came into force. “Many have not been paid since February [2020] and they are not expecting work for at least six more months.”
Many of the risks faced by garment workers existed before the pandemic and will continue after it has passed. But COVID-19 has shone a spotlight on the yawning protection gap in the sector – as well as the role inclusive insurance could play to help deliver a more secure future. This is an opportunity for leading fashion brands and insurers to work together to find solutions which not only protect low-income workers but enable consumers to shop with a clear conscience.