6 Access to Insurance
145. Insurance is one of the many financial services
products that the vast majority of people take for granted. Insurance
services do not feature prominently in Government documentation
on financial inclusion. However, problems in accessing insurance
can create real hardship for those concerned. A person without
contents insurance may have to replace essential household items
if they are a victim of crime, or suffer damage from a fire or
flood. Half of the poorest 20% of households are uninsured, whereas
only one in five households on average incomes are uninsured.[276]
146. The ABI told us that their work was designed
to address three core obstacles to providing a service to low
income consumers.[277]
These obstacles were:
- Cost: some people just did
not have money to spare for insurance, at any price. Because of
the degree of risk many poor people faced from crime and other
causes, getting the cost low enough for them to purchase insurance,
whilst also maintaining commercial viability, might be impossible.
- Payment systems: insurers could not collect payments
efficiently from people without bank accounts. This added to the
cost of the service and reduced its availability.
- Understanding: Those with low levels of financial
education could find insurance services hard to understand and
might be deterred by the documentation. Some appeared to have
fundamental misconceptions, believing, for example, that the service
had not been worth having if there had been no reason to claim,
and that therefore cover need not be renewed.
147. In terms of cost, the ABI noted that home insurance
was now approximately 23% cheaper in real terms than ten years
earlier, a reduction largely achieved through increased efficiency
in distribution and administration. However, the ABI accepted
that
unfortunately, the other major element of insurance
costs is associated with the risks insured. Insurers have long
been involved in working with other organisations to give practical
advice in areas such as fire safety and burglary prevention, but
risk premiums inevitably reflect crime rates and accidental fire
risks, issues beyond the direct control of the industry. The industry
would welcome a closer partnership with government departments
and police authorities to tackle problems such as high crime rates.
Such an approach, with the industry working closely with the Environment
Agency and DEFRA, has already worked well in tackling problems
connected with flooding.[278]
148. Lowering the cost of insurance is substantially
based on lowering risk. We recommend that the insurance industry
and the Government examine the potential for pilot schemes focused
on risk reduction.
149. For those households who do not have access
to a bank account and cannot pay by cheque or cash, the industry,
in partnership with local authorities, has developed 'Insurance
with Rent schemes'. These give social housing tenants the option
to take out standard contents insurance (arranged through their
landlord) and pay the premiums alongside their rent payments.
The Joseph Rowntree Foundation concluded that such schemes were
an ideal way of providing low-cost insurance to people on low
incomes in that they offered lower levels of minimum cover and
in most (though not all) high-risk areas offered lower premiums
per £1,000 insured than can be found in the direct market.[279]
The ABI indicated that such schemes were available in around half
of local authorities in England and Wales and 75% of local authorities
in Scotland. In 1999, Melanie Johnson MP, the then Economic Secretary
to the Treasury, expressed the hope that "the Government
and the industry would be able to agree some challenging targets
for extending insurance with rent schemes".[280]
We are not aware of any challenging targets being set, and, although
some guidance has been developed by the ABI, there is no reliable
data on whether this led to an increased number of local authorities
offering the scheme. Recent research of insurance with rent schemes
in Scotland has also found that, despite the "easy availability
of competitively priced, good policy cover, we find that the take-up
rates by tenants are low".[281]
Insurance with rent schemes can reduce the cost of insurance
and ensure easier access for low-income households. We recommend
that the Government establish a stretching target to ensure that
such schemes are available in more local authorities and housing
associations. We further recommend that local authorities take
action to promote the take-up of these schemes amongst uninsured
households.
150. The ABI told us that "When local authority
housing stock is transferred to small housing associations, there
can sometimes be problems arising from a lack of infrastructure
to administer the schemes. One way of tackling this problems is
through consortiums such as the Northern Housing Consortium (which
has over 170 members representing local authorities, housing associations
and other social landlords)".[282]
The Government must ensure that transfers of local authority
housing to Arms Length Management Organisations (ALMOs) or to
a housing association do not disrupt the administration of successful
insurance with rent schemes.
276 Joseph Rowntree Foundation, Monitoring poverty
and social exclusion 2005, p 108 Back
277
Ev 188 Back
278
Ev 190-191 Back
279
C Whyley, L McCormick, and E Kempson (1998) Paying for peace
of mind: access to home contents insurance for low-income households,
London: Policy Studies Institute Back
280
HM Treasury, Policy Action Team 14 report, Access to financial
services, Foreword Back
281
J Hood, W Stein, C McCann, Insurance with Rent schemes: An
empirical study of market provision and consumer demand, April
2005 Back
282
Ev 191 Back
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