Alison Boyle investigates what the industry is doing to include the so-called socially excluded market, which is marred by financial strain and apathy

David Clayton is 28-years-old and rents a furnished property on the outskirts of Leeds city centre. A plasterer on a moderate wage, David's biggest pride and joy is his CD system and collection.

With no car, the concept of spending money on insurance is such a low priority for David that he has never given it a second thought.

Yet he is still classed amongst a group of people that has become a Government buzzword of late – the socially excluded.

The present Government is anxious to improve the lot of marginalised socio-economic groups and access to financial services is high on the agenda.

Insurers, in particular, have been criticised in the past for not making home contents cover available to inner city residents. And the practice of red-lining, turning down applicants purely on the basis of their postcode, has received condemnation from Government and consumer associations alike.

Fuel to the debate
A Treasury report on the issue looks set to add further fuel to the debate by setting out proposals aimed at ensuring that millions of people who live in deprived areas have the same access to insurance and banking as those that live in more affluent areas.

These include insurers working with the Post Office and credit unions to provide appropriate insurance cover for these areas.

It is estimated in the report that more than six million households, one in four, in the UK, do not have any contents cover.

Of this number, half believe it is too expensive while the rest have never thought about it or believe they have been red-lined by insurance companies.

This practice is hotly countered by the Association of British Insurers (ABI). Deputy director general Tony Baker is quick to point out that the research used in the Treasury report is based on the 1998 Joseph Rowntree report – "Access to home contents insurance for low-income households".

It found that only a small minority of uninsured households – two per cent – had actually been refused home contents insurance.

Baker says: "The social exclusion issue is not one of availability. Suggestions that red-lining takes place are erroneous."

The Joseph Rowntree report confirms this and dispels the myth. The insurance industry would love to sell to these six million people but it is not an easy market.

Not only does the industry face higher risks of crime and fraud, which push up premiums, but half of these people do not believe in insurance, making marketing pushes complex and arduous.

Financial strain
Other findings of the Rowntree report revealed that uninsured households were most likely to have low income, few savings and to be facing financial difficulties.

They were predominately tenants and lived in metropolitan areas.

About half of the households without home contents insurance had a policy in the past but let it lapse, largely because they were facing financial strain.

The remaining half were mainly people on the margins of financial services generally who tended not to have a bank account or any savings.

In recent years a range of intermediate insurance markets have developed that target low income households. Most are based on commercial partnerships between insurance companies and local authorities, housing associations and community credit unions.

As a result of their success the ABI has recently commissioned a work programme to examine best practices and update the findings of the original Joseph Rowntree report.

Successful schemes
It has found that a growing number of local authorities are working with insurance companies to enable tenants to buy home contents insurance at the same time as they make rent payments.

Two years ago, 43% of local authorities said they were running schemes. Now it has increased to 51% with a further nine per cent saying they are in the process of setting one up or actively considering doing so.

The more successful schemes, it found, are marketed by both insurers and the intermediary and where intermediaries play an active role in premium collection the methods for collecting premiums that are generally believed to be best are via the Post Office or a local housing office as these allow weekly payments for people without access to bank accounts.

ABI director general Mary Francis says: "Insurance companies are committed to finding ways of overcoming any barriers which discourage people from purchasing insurance, particularly home contents cover, life insurance and regular savings plans.

"Despite beliefs to the contrary independent research indicates that insurance is almost always available but more effort is needed to measure that customers know what is available and to make sure that products cater for the needs of people on low and fluctuating incomes.