PPI controversy, opaque financial services and lack of trust in the industry are key barriers to widespread apathy about insurance protection, pensions and savings, Zurich has warned.
The final report of a long-running collaboration between Zurich and cross-party think tank Demos shows that those saving and investing in risk-managing insurance often felt penalised by means-tested welfare that punished responsible behaviour.
According to the report, entitled Control Shift, at an expert roundtable at the Conservative Party Conference many felt more should be done to improve trust in the financial services industry to promote engagement with the right products.
The report said: "Individuals need to be encouraged to improve their insulation against everyday financial risk - it is unlikely that the state will be in a position radically to improve the financial protection it offers to citizens, therefore the private sector has a central role to play."
The report warned that the financial services industry needed to be more active when discussing risk and educating expectations of consumers to enable financial responsibility.
It added: "If confidence in the financial services industry is not restored - and if the public's perception of risk is not improved - then the UK economy faces the danger of mimicking the Japanese economy in the mid-1990s."
Gary Shaughnessy, chief executive of UK life at Zurich, said: "The recommendations from this report suggest many different ways for the private sector, public services and communities to work together in encouraging and increasing responsible behaviour through public policy.
"The combination of a challenging economic environment and pressures such an ageing population means that State resources are stretched to the limit and this is not a sustainable long-term solution."
The report proposed offering additional flexibility on National Insurance for individuals who progress from basic auto-enrolment to wider savings and protection.
The report stated: "We found that by encouraging individual responsibility and engaging with the insurance industry, the UK could simultaneously lift the level of financial protection available to the ‘squeezed middle' while reducing the cost to the state through income protection."
Demos research previously showed if the UK market in income protection was grown to the same proportion as that in the US - from 9% to around 30% - it could save the state up to £3.1bn a year.
Previous reports in this collaboration between Demos and Zurich proposed that offering an incentive of £100 for each policy purchased - paid from National Insurance - would cost the state £0.86bn a year and lead to an aggregate saving of £2.24bn in unemployment benefits.
The final report adds: "National Insurance rebates could be developed further; for example, individuals could be given a small proportion of the National Insurance contributions back - as a rebated voucher - to be invested in their chosen pension and boost their private protection."
There was also a strong case outlined in the report for carers to be recognised more fully as a key component of the health debate and for employers to be more engaged with care provision as part of responsibility for employees.
The 113-page document added that as the Dilnot review debate became central to the second half of the Coalition Government's term, these issues would rise up the public agenda.
It also said that as long-term social care was becoming more important to the public a more flexible pensions offering - that allowed individuals to use some of their endowment to purchase care insurance - might be needed.
The report also touched on sickness absence management and warned that giving employers sole responsibility for employees' sickness absence passed the buck to insurers.
It said a more efficient way of encouraging people back into work after sickness was through strong line managers.
Shaughnessy said: "Creating the right incentives for people to manage their health and retirement.
"This may include actively encouraging healthier lifestyles with reduced premiums or tax breaks at retirement for those willing to invest part of their pension to help cover long-term care costs, decreasing the pressure on the State's healthcare infrastructure. We hope this report will serve as a call to action."
