A quarter of British households have no contents insurance. John Parker, head of general insurance, Association of British Insurers, suggests ways to make it more widely available....
If ever anyone was in doubt about the value of household insurance, the recent bout of flooding across much of England and Wales will have provided a stark demonstration of how crucial proper insurance cover is in the aftermath of a disaster.
Although these floods won't top the list of the most costly British natural disasters – as some commentators have suggested they might – insured costs will certainly run into the hundreds of millions of pounds. And, as you'll know if you've seen just some of the TV news coverage, for those affected, they have been a real catastrophe.
A disaster like a fire, a burglary, or a flood is bad enough if you are insured. But 25% of UK households have no contents cover. In some areas, like Wales and Greater London, this figure rises to 30%. And the figure gets even higher when you take factors like age, occupation and type of housing into account: for example, almost half of all households headed by someone aged under 30 have no contents cover.
The reasons for this lack of cover are far from mysterious. They're generally about money – with price, affordability and access to financial services being the key factors. Often it's not the overall yearly expenditure that's the problem, it's how to go about paying your premium if you don't have a bank account. Monthly instalments are all very well, but how many contents insurers take them in cash? This type of financial exclusion carries with it enormous risks. Families on low or fluctuating incomes are not only the people most likely not to have contents cover, but also the least able to afford the clean-up costs in the wake of a disaster like the floods.
What can insurers do? Plenty. Insurance with rent is one example. Already more than half of all local authorities and about 60% of housing associations allow tenants to pay for contents insurance in instalments, along with their rent. Regular cash payments like these bring down the cost of cover to manageable proportions. And if a local authority can buy a block policy on behalf of all its tenants, the cost of cover comes down too.
The ABI is a strong supporter of insurance with rent schemes. At a seminar held here early last month, insurers, local authorities and housing associations looked at how the initiative could be extended and developed, to encourage even further the take-up of home contents insurance. One important conclusion was that we should work with our members and housing providers in drawing up best practice guidelines to encourage more local authorities and housing associations to get involved, and give them some practical help once they do.
During the 1990s we saw a steady increase in insurance with rent schemes, and it looks set to continue. No scheme has closed down in recent years and the cost of cover fell over the past two years, although the minimum level of cover certainly did not.
And there are wider lessons to be drawn from what we know about exclusion from contents cover. As insurance becomes increasingly IT-driven, with pressure to cut costs making telephone and internet sales a more inviting and profitable prospect, we must remember that, for some of our prospective customers, new technology is a barrier not a benefit. We must ensure that, by making our business easier and more straightforward for our financially and technologically sophisticated customers – and ourselves – we do not exclude from our services the people who are most financially vulnerable and therefore, perhaps, most in need of them.