United Kingdom

Contents insurance comfort

Millions of people living in social housing without contents insurance are missing the financial resilience it can bring

AUTHOR: Helen Povah, Client Director, Managed Programmes, Aon. Originally published in Stronger, The ALARM journal, July 2021 alarmrisk.com

Losing important possessions in a burglary, fire or an escape of water is devastating. While most of us would resort to an insurance policy to cover our losses, this isn’t an option for around 2.5 million tenants in low-income households1 who don’t have cover.

For them, having to replace household items can be a significant financial shock. According to research by WPI Economics1, 51% of low-income renters don’t have any savings at all, forcing many to turn to credit to pay for a potentially insurable loss.

Unfortunately, turning to credit can often be the first step along a very slippery financial path. Lower income households often face higher interest rates and, where high street options aren’t available, may find unscrupulous lenders or exorbitant rates their only option.

Extra borrowing affects ability to pay rent and other household bills or make debt repayments, can lead to a debt spiral that’s impossible to escape. It can even put tenants at risk of homelessness. Given this, there’s a pressing need to help individuals become more financially resilient.

Insurance has an important role to play in contributing to financial resilience. Designed to protect the most financially vulnerable in society, with access to affordable cover for household belongings, a tenants contents insurance scheme can provide a solution. It gives individuals the reassurance that, if the worst happens, they can get back on their feet without having to dip into savings, sell assets or turn to unsecured credit.

The peace of mind afforded by this cover can be valuable, with research1 finding that not having insurance can adversely affect a tenant’s emotional wellbeing. According to research, 54% of tenants say that lack of contents insurance has a negative emotional impact on them, with 51% saying it makes them feel vulnerable, 38% saying it leaves them feeling nervous or insecure, and a further 34% saying it makes them stressed.

Protection gap

In spite of the need for cover in the social housing market and the benefits it brings, take-up of contents insurance among social housing tenants remains low. Sixty one per cent of UK renters in low-income households have no contents insurance, about 2.5 million people1.

Low take up is particularly concerning when considering the research’s other findings. Thirty three per cent of these individuals have had a potentially insurable loss in the last five years, rising to 47% among 18 to 34-year-olds. Of those who experienced a loss, 27% had to turn to credit to replace or repair their belongings.

The research also found that 73% of low-income renters would struggle to pay an unexpected bill of £500 without help from an external source. Given that the average payout on claims made on Aviva’s contents insurance scheme for tenants is £5511, this leaves many individuals in a precarious situation if they suffer a loss.

This situation is made worse by the fact that when it comes to the risks, figures from the Association of British Insurers2 show the odds are stacked against low-income households. Tenants in social housing are almost twice as likely to be burgled as owner-occupiers; arson rates are 30 times higher in low-income communities than higher-income ones; and low-income households are eight times more likely to be in a tidal floodplain than more affluent households.

Overcoming barriers

This protection gap is concerning but when asked why they don’t have cover, the research found that 78% of low-income renters point to a financial barrier for this decision. Of these, 44% say premiums are too expensive; 36% that they wouldn’t be able to afford the excess charge; and 22% say it’s not worth it.

A lack of understanding around insurance also contributes to low take-up. Sixty one per cent of low-income renters without contents insurance cited reasons such as not knowing how to get cover or how to make a claim; difficulties comparing insurance quotes; and not understanding what would be covered as some reasons they hadn’t protected their belongings.

But these perceived barriers can be overcome. Tenants’ contents insurance is designed specifically for the needs of low-income renters, including key features such as affordable, low-cost premiums and simple pay-as-you-go options to match income streams. However, it seems take up can be low even when contents insurance is offered at sign up, with no excess and flexible payment options as low as £1 a week. Tenants believe they just don’t need it. This general belief can only change with education.

Money Saving Expert's Martin Lewis is campaigning to introduce personal finance lessons in schools to educate children early on how to manage money and financial risk. It would certainly increase understanding of insurance issues. But in the meantime, councils and housing providers are well placed to inform tenants and discuss the risks. This is a particular priority for vulnerable tenants who may need extra time and support to come to an informed decision on obtaining cover.

Social housing landlords can also help tenants understand their cover. Selecting an appropriate policy for tenants can remove barriers around accessing and comparing cover. In addition, insurers and brokers can work with landlords to provide material on insurance, so tenants are empowered, understanding the benefits and how to claim if they do experience a loss.

Benefits of offering cover

Offering access to an affordable insurance product benefits both landlords and tenants. Firstly, there’s the peace of mind it offers to both parties. With contents insurance in place, a tenant has the reassurance that if their belongings are stolen, lost or damaged, they can replace them without having to worry about where to find the money. It can also directly benefit a tenant’s finances. A policy designed specifically for their needs is likely to be more appropriate, affordable (and flexible to pay for) than one they might have arranged independently.

For a landlord, knowing a tenant has this safety net brings reassurance. A tenant with contents cover is much less likely to miss a future rent payment as a result of paying for repairs or replacement of belongings.

Importantly it offers valuable protection to tenants. With an insurance policy in place, they’re less likely to fall into debt if there is an incident in the home. In turn, by protecting tenants from debt, it helps keep them and their families in safe and affordable accommodation.

Offering an insurance scheme can also drive-up engagement with tenants. It gives landlords a reason to talk to tenants and can lead to other conversations. Whether that’s updating them on the latest changes to Universal Credit, highlighting emerging or seasonal risks so they can take steps to protect themselves, their homes and their belongings.

There are also reputational benefits for the landlord. Building and maintaining a good relationship with tenants is vitally important to the smooth running of a social housing operation. Offering access to an affordable insurance scheme demonstrates a landlord cares about the safety and security of tenants, while also showing that financial inclusion is taken seriously.

Success is dependent on offering insurance cover that meets the specific needs of social housing tenants. These features are key:

  • Affordability – premiums must be affordable, ideally starting at a couple of pounds a month. Payment options must be flexible to suit income streams.
  • Cover – a policy must cover the items that matter to tenants. Gadgets and tablets are commonplace now and need to be factored into cover, rather than require tenants to take out a separate and potentially more expensive policy.
  • Accidental damage – mishaps do happen. Whether it’s a television that a pet or toddler knocked off its stand, or a smartphone that had a close encounter with a cup of tea, tenants value the ability to replace essential items.
  • Zero excesses – it is important to remove any barriers to claim. Where possible, tenants’ contents insurance policies should have no excesses. Having to find the first £50 or £100 of a claim can deter low-income renters from submitting a claim altogether.

We also recommend that landlords review their scheme every couple of years. There are only a handful of insurers offering bespoke schemes, but an open market review will ensure a scheme continues to offer the most appropriate cover options and represents good value for tenants.

Cover for all

Providing more tenants with access to this valuable protection will increase financial resilience and inclusion in the social housing market. This will ensure more people can survive the financial shock of a loss, without having to face the risks associated with spiralling debt.

These benefits are so significant that Aon has worked with the Financial Inclusion Commission to highlight the value of tenants’ contents insurance schemes. This included holding an event at the Houses of Parliament in 2020 to raise the profile of this cover and campaign for it to be included as standard in all social housing residents’ rent payments.

The pandemic is showing just how precarious many households’ finances are, so enabling every tenant in social housing to secure the protection and peace of mind that insurance offers is an important step to delivering financial inclusion.

Helen Povah (helen.l.povah@aon.co.uk) is Client Director of Managed Programmes at Aon, responsible for the tenants’ contents insurance sector within the UK. Since joining Aon in 2009, Helen has managed various clients in the North of England and Scotland. Prior to this, she was an underwriter on tenants’ contents insurance schemes for RSA, looking after a portfolio of business placed by brokers. Aon has 30 years’ experience of working with councils and housing associations to facilitate tenants' contents insurance schemes and currently protects more than 100,000 tenants. aon.com

While care has been taken in the production of this article and the information contained within it has been obtained from sources that Aon UK Limited believes to be reliable, Aon UK Limited does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the article or any part of it and can accept no liability for any loss incurred in any way whatsoever by any person who may rely on it. In any case any recipient shall be entirely responsible for the use to which it puts this article. This article has been compiled using information available to us up to 14 April 2021.

References

1Contents covered: the role and importance of home contents insurance for low-income renters, WPI Economics Report for Aviva, July 2019

2abi.org.uk/globalassets/sitecore/files/documents/publications/public/migrated/home/helping-tenants-protect-their-possessions.pdf

Contents insurance comfort was originally published in the July issue of stronger, the ALARM journal. ALARM is a not-for-profit membership association that has supported risk management professionals for 30 years. They provide members with outstanding support including training, guidance and best practice, networking and industry recognition for excellence across risk management. For more information, visit alarmrisk.com and follow @ALARMrisk on Twitter and LinkedIn.