Social Justice. Exploring the Take-up of Home Contents Insurance

Transcription

1 Social Justice Exploring the Take-up of Home Contents Insurance

2 EXPLORING THE TAKE-UP OF HOME CONTENTS INSURANCE Paolo Vestri Hexagon Research and Consulting Scottish Executive Social Research 2007

3 This report is a web only publication. It is available on the Scottish Executive Social Research website The views expressed in this report are those of the researcher and do not necessarily represent those of the Department or Scottish Ministers. Crown Copyright 2007 Limited extracts from the text may be produced provided the source is acknowledged. For more extensive reproduction, please write to the Chief Researcher at Office of Chief Researcher, 4th Floor West Rear, St Andrew s House, Edinburgh EH1 3DG

4 ACKNOWLEDGEMENTS Hexagon Research and Consulting would like to thank Sinead Power and Catriona McKay of the Scottish Executive for advice and support provided at all stages of this project. We would also like to thank the officials in East Lothian and West Dunbartonshire Councils, East Lothian, Faifley and Shettleston Housing Associations for their assistance in recruiting tenants to participate in the tenants discussion groups; and, the representatives of the national and local organisations who gave up their time to be interviewed. Finally, we would like thank the tenants who participated in the focus groups and small discussion groups sessions held in East Lothian, West Dunbartonshire and Glasgow. Their experiences, views and insights into the underlying reasons behind the choices people make about whether to take out home contents insurance are an extremely important part of this study.

5 CONTENTS Executive Summary Page i 1. Introduction 1 2. The provision of home contents insurance for tenants in Scotland The level of take up of home contents insurance amongst social rented sector tenants in Scotland Models of Insurance Provision for Social Rented Sector Tenants 9 3. Reasons underlying choices made about home contents insurance Why do tenants not take out home contents insurance? Why do tenants take out home contents insurance? What works to increase take up of home contents insurance? Recommendations 31 Appendix 1: Stakeholder interviewees 33 Appendix 2: GHA Home Contents Insurance Scheme 34 Appendix 3: Methodologies used by previous studies into home contents insurance 36

6 EXECUTIVE SUMMARY INTRODUCTION The 2003 Scottish Executive Partnership Agreement 1 included a commitment to support home insurance schemes tied to rents paid to landlords in the social rented sector. In pursuing this commitment the Scottish Executive provided local authorities and the Scottish Federation of Housing Associations (SFHA) with 400,000 in 2003/04 to promote take up of their home contents insurance schemes amongst local authority and housing association tenants. A further 100,000 was used for a national publicity campaign. All but four local authorities and almost all Scottish housing associations offer their tenants access to low cost home contents insurance schemes. The marketing campaign increased take up of these schemes by around 10%. However, despite this increase, by 2005 on average only around 12% of social rented sector tenants take advantage of their landlords low cost home contents insurance schemes. The 2005 Scottish Household Survey showed that the level of home contents insurance amongst social rented sector tenants (tenants with landlord provided schemes or with their own private insurance cover) fell from 56.1% in 2003 to 54.6% in The aim of this project is to explore the underlying reasons why the level of take-up of home contents insurance by social housing tenants is low, and to recommend measures that would raise it. This study was informed by evidence from three sources: Desk based review of existing research and practice in Scotland and the rest of the UK Stakeholder interviews Tenants discussion and focus groups. The main focus of the report is an analysis of the findings of the desk based research and tenants discussion and focus groups on the reasons underlying choices made by tenants whether to take out home contents insurance based around three key questions: why do tenants not take out home contents insurance? why do tenants take out home contents insurance? what works to increase take up? The report concludes with a series of recommendations on how take-up of home contents insurance could be increased in the social rented sector. 1 The Scottish Executive (2003) A Partnership for a Better Scotland i

7 REASONS UNDERLYING CHOICES MADE ABOUT HOME CONTENTS INSURANCE Why do tenants not take out home contents insurance? Previous research A review of three previous studies into low take up of insurance identified that the reasons for low take up of home contents insurance amongst social rented sector tenants can be summarised as: Poverty tenants on low incomes and facing financial difficulties or strain are less likely to have insurance. They are unlikely to see insurance as a priority Product design low income households may have difficulty paying by direct debit or committing to long term products Perceptions some tenants, predominantly young people do not think that they need to be insured or are confused by, or distrustful of, insurance products. One study suggested that uninsured households could be divided into four groups according to how they assess risk and make decisions about insurance: Risk averse Risk calculators Risk resigned Risk unaware. A second study categorised uninsured households into four different but similar categories: The constrained The carefree The confused The incredulous. Findings from primary research undertaken for this study The stakeholder interviews and interviews with tenants who do have insurance suggested that low income tenants, young tenants and single parents are less likely to take out insurance cover for the following reasons: It is not seen as relevant, they think they do not need insurance cover or it is not for them ii

8 They cannot afford to, or choose not to, take out insurance because they have to make choices about where to spend the small amount of disposable income they have. In summary, the uninsured tenants who took part in the discussion groups can be categorised as having the following characteristics. Lapsed Had previously been insured but had let their insurance lapse due to a change in personal circumstances and had never bothered or got round to taking out home contents insurance. Not got round to it Had thought about taking out insurance but had not been motivated enough to do it. Not worth it/ too few possessions Had thought about it but had made a decision not to take out insurance because they felt it was not worth it due to their having very few, if any, possessions of any value. Unaware/ never thought about it Had been unaware of home contents insurance and had never really thought about it. In addition, the Glasgow Housing Association (GHA) focus groups revealed that a relatively high proportion of tenants in Glasgow have a high level of mistrust of insurance schemes, including the one operated by GHA. Most uninsured tenants were concerned about the possible cost. Some had thought that they would need to take out cover for amounts well above the value of their possessions at a prohibitive cost. Many of these uninsured tenants were surprised that the actual cost for a low level of cover, which would be sufficient to cover the value of their possessions, might be as little as 1.50 a week. Very few tenants suggested that they or other tenants would not be be able to afford this level of premium payment. Why do tenants take out home contents insurance? Fifteen of the participants in the tenants discussion groups had home contents insurance seven had taken out a policy through their landlord and eight had taken out private cover through a high street insurance company. Twenty four of the 68 tenants who participated in the GHA focus groups have taken out home contents insurance cover through the Council/ GHA scheme whilst a further nineteen have taken out private insurance cover. Several of these tenants stated that they had taken out a private policy or had switched from a Council/ GHA policy to a private policy because of bad claims experience. iii

9 Almost all tenants with insurance cover mentioned that they had taken out insurance to guard against loss of possessions due to burglary, fire or flooding (from overflowing bath or washing machine). Several tenants had had experience of being burgled before taking out insurance or knew a relative or neighbour who had been burgled and this had been a major factor in their decision to take out insurance cover. All the tenants who had a local authority or housing association insurance policy welcomed the relatively low level of premium payments and were also happy to have relatively low levels of cover. Almost all the tenants aged over 60 took advantage of the lower level of cover offered to tenants aged over 60. Tenants who had taken out private insurance cover rather than their landlord s had done so for various reasons including, taking out insurance before they had moved to their rented house or before the landlord scheme was available. Several tenants chose a private scheme because they wanted a higher level of cover than is available through their landlord s scheme. Tenants with insurance cover tend not to shop around and stay loyal to their insurance company unless they face a significant increase in premiums. What works to increase take up of home contents insurance? Scottish local authorities and housing associations use various methods to try to increase take up of their home contents insurance schemes, including: Adverts in tenants newsletters News stories in newsletters Providing information and application form to new tenants at the tenancy sign up Verbal advice provided by housing officers Promotional leaflet mailed out to tenants. Previous studies into low take up of home contents insurance and the stakeholder and tenants interviews undertaken for this study suggest that the following measures can be used to increase take up of home contents insurance schemes provided or promoted by social rented sector landlords. Active promotion of schemes by well informed and motivated housing staff including informing tenants when they sign their tenancy or at the follow settling in visit Working with tenants to design insurance schemes that meet the needs of low income households Easy payment methods such as with rent by direct debit and rent payment cards or cash payment in housing offices or post offices iv

10 Marketing home contents insurance through clear, easily understood messages about the benefits of being insured and better information about policies, level of cover etc. Encouraging word of mouth from other tenants. The report concludes with a series of recommendations for landlords and the Scottish Executive on how take-up of home contents insurance could be increased in the social rented sector. v

11 1. INTRODUCTION The 2003 Scottish Executive Partnership Agreement 2 included a commitment to support home insurance schemes tied to rents paid to landlords in the social rented sector. In pursuing this commitment the Scottish Executive provided local authorities and the Scottish Federation of Housing Associations (SFHA) with 400,000 in 2003/04 to promote take up of their home contents insurance schemes amongst local authority and housing association tenants. A further 100,000 was used for a national publicity campaign. Most of Scotland s 32 local authorities operate and almost all housing associations promote a home contents insurance scheme for their tenants. The Scottish Executive funding was used to promote local authority insurance schemes through a variety of measures such as advertising and promotional leaflets and campaigns. SFHA s funding was used to promote the Diamond Insurance scheme which is offered to the tenants of SFHA s member housing associations. However, despite the nationally funded promotional work local authorities reported 3 only a relatively small increase in take up of their home contents insurance schemes. On average the level of take up increased by around 10% but this only took the proportion of local authority tenants who have home contents insurance provided through the local authority scheme to around 12%. The SFHA reported an increase in take-up of insurance through the Diamond Scheme of over 30%. However, this only took the take up of insurance through the scheme to around 9% of housing association tenants. Therefore, by 2005 around 75,000 local authority and Housing Association tenants (c. 12% of tenants in the social rented sector) had a home contents insurance policy provided or promoted by their landlord. The 2005 Scottish Household Survey 4 shows that despite the nationally funded promotional work the overall take-up of home contents insurance amongst tenants in the social rented sector actually fell from 56.1% in 2003 to 54.6% in Promoting the take-up of home contents insurance remains one of the Scottish Executive s objectives and is part of the Financial Inclusion Action Plan that was published in January 2005: Support is being given for the provision of new household insurance products, including affordable home contents insurance underwritten by established insurance companies, by approved Credit Unions 2 The Scottish Executive (2003) A Partnership for a Better Scotland 3 The Scottish Executive Development Department (2005) A Survey of Home Contents Insurance Schemes in the Social Rented Sector (unpublished report produced by the Scottish Executive Development Department Private Sector and Affordable Housing Policy Division) 4 (The Scottish Executive) 1

12 Social landlords (as part of their self-assessment part of the regulatory framework operated by Communities Scotland), are now required to consider what they are doing to improve access to and take-up of home contents insurance The possibility is being explored of using the networks of Registered Tenants Organisations to promote home contents insurance. Aims and Objectives of this Study The aim of this project is to explore the underlying reasons why the level of take-up of home contents insurance by social housing tenants is low, and to recommend measures that would raise it. The objectives of the research are: to identify and develop an understanding of the reasons which underlie the choices made by tenants in the social rented sector about home contents insurance and the factors which influence these choices to explore some examples of approaches that have worked/ not worked in encouraging uptake of home contents insurance to identify best practice advice in take-up which can help to inform the work of credit unions and others in providing affordable home contents insurance. Methodology This study was informed by evidence from three sources: Desk based review of existing research and practice in Scotland and the rest of the UK Stakeholder interviews Tenants focus groups. Desk based research A web based search and stakeholder interviews identified several research studies on home contents insurance in the social rented sector that have been carried out in recent years including: Insurance for all: a good practice guide 5 Widening the safety net: Learning the lessons of insurance with-rent schemes 6 5 Greg Campbell Management Consultancy and Gibbs Laidler Ltd (2001) Insurance for all: a good practice guide (The Housing Corporation) 6 Demos and SAFE at Toynbee Hall (2005) Widening the safety net: Learning the lessons of insurance with-rent schemes (Demos) 2

13 Paying for peace of mind: Access to home contents insurance for low-income households 7 Identification of barriers to tenants take-up of low cost, high quality household contents insurance promoted by their landlord 8 A Survey of Home Contents Insurance Schemes in the Social Rented Sector In addition we undertook a web based review of home contents insurance schemes operated by local authorities and housing association in the UK. Stakeholder interviews The second stage of the research involved 14 telephone interviews with representatives of a range of national and local stakeholders that have a direct involvement in the operation or promotion of home contents insurance in the social rented sector, including: Scottish Federation of Housing Associations (SFHA) Insurance Brokers and an insurance underwriter Local authorities Housing associations Credit Unions A tenants organisation. Appendix 1 provides details of all the stakeholder interviewees. The interviews were used to explore key issues such as differing experiences of take-up of home contents insurance what may have worked in encouraging take-up underlying reasons why take-up of home contents insurance may not have improved. 7 Whyley C, McCormick J and Kempson E (1998) Paying for peace of mind: Access to home contents insurance for low-income households (Policy Studies Institute) 8 Dr Hood J, Dr Stein W and McCann C (2006) Identification of barriers to tenants take-up of low cost, high quality household contents insurance promoted by their landlord (unpublished report produced for the Scottish Federation of Housing Associations) 9 The Scottish Executive Development Department (2005) A Survey of Home Contents Insurance Schemes in the Social Rented Sector (unpublished report produced by the Scottish Executive Development Department Private Sector and Affordable Housing Policy Division) 3

14 Tenants Discussion and Focus Groups The main element of primary research undertaken for this study was small discussion groups with social rented sector tenants in three areas and focus groups with Glasgow Housing Association (GHA) tenants. The three areas chosen for the discussion groups were: East Lothian, Glasgow (Shettleston) and West Dunbartonshire. One of these areas, East Lothian, has a relatively high level of home contents insurance amongst social rented tenants; whilst the other two areas have the lowest levels of take up of home contents insurance reported in the Scottish Household Survey. In each area, invitations to attend the discussion groups were sent to around 400 local authority and housing association tenants a randomly selected sample of equal number of tenants who have or have not taken out home contents insurance through their landlord. A total of 25 tenants, 10 of whom did not have home contents insurance participated in the small group discussions. Table 1 provides a summary of the characteristics of the tenants who took part in the discussion groups in the three areas. Table 1: Characteristics of Tenants who took part in Discussion Groups Number of tenants With Council/ HA Home Contents Insurance With own Home Contents Insurance Without Home Contents Insurance Local Authority East Lothian Glasgow (Shettleston) West Dunbartonshire All Housing Association Glasgow Housing Association Housing Association Local Authority Housing Association n/a n/a n/a 10 Total Each small discussion group lasted around 40 minutes and involved an in-depth discussion about the choices tenants make in relation to home contents insurance. 4

15 In addition a series of focus groups conducted by Hexagon Research and Consulting as a follow up to a tenants satisfaction survey conducted on behalf of Glasgow Housing Association (GHA) were used to gather the views and experiences of home contents insurance of tenants in 10 Local Housing Organisations (LHOs). A total of 68 tenants participated in the focus groups; 24 tenants had a GHA home contents insurance policy; 19 had taken out private insurance; and, 25 had no home contents insurance. Table 2 provides the breakdown of tenants across the 10 LHOs. Table 2: Characteristics of Tenants who took part in the LHO Focus Groups LHO GHA Insurance Private Insurance No Insurance Maryhill Ardenglan Cardonald Halfway Kalm Keystone Parkview Red Road Balornock Summerston Acre Swatch Total Each focus group lasted for around one hour and included discussion around the following six themes: Satisfaction with home Satisfaction with LHO Property services Investment Contact and Communication Home contents insurance. Three questions were asked specifically about home contents insurance: 1. Have you taken out home contents insurance? If so, is this through the GHA scheme or is it private? 2. Why do you not have insurance? Have you considered it and decided against it? Why? 3. What would help you decide to take out home contents insurance? 5

16 Since these focus groups were organised on a different basis and covered a wider range of issues than the small discussion groups they have been analysed and reported in separately. Structure of this Report This report begins with an overview and analysis of levels of take up of home contents insurance amongst social rented sector tenants followed by descriptions of the main types of schemes operated by local authority and housing association landlords with rent and arms length schemes. The main focus of the report is an analysis of the findings of the desk based research, stakeholder interviews and tenants discussion and focus groups on the reasons underlying choices made by tenants with regards to whether to take out home contents insurance. This is based around three key questions: why do tenants not take out home contents insurance? why do tenants take out home contents insurance? what works to increase take up? The report concludes with a series of recommendations for landlords and the Scottish Executive on how take-up of home contents insurance could be increased in the social rented sector. 6

17 2. THE PROVISION OF HOME CONTENTS INSURANCE FOR TENANTS IN SCOTLAND This chapter provides an analysis of the level of take up of home contents insurance amongst social rented sector tenants in Scotland drawing on information from a survey of local authorities and the SFHA carried out by the Scottish Executive and the Scottish Household Survey. It then outlines the main features of the two most common models of home contents insurance schemes provided or promoted by social rented sector landlords local authority with-rent schemes and the arms length scheme (Diamond Insurance Scheme) promoted by SFHA through its members and a third opt-out scheme, operated by a housing association for tenants in sheltered housing. 2.1 The level of take up of home contents insurance amongst social rented sector tenants in Scotland Following on from the 2003 Partnership Agreement to support home insurance schemes tied to rents paid to landlords in the social rented sector 10 the Scottish Executive invested 500,000 in to encourage the increase in take up of home contents insurance amongst social rented tenants. The 400,000 that was provided to local authorities and the SFHA was used in a variety of ways, including: Distribution of national and local publicity material Advertising campaigns in the local press and radio Awareness training for frontline staff Promotional prize draws Promotional events. The Scottish Executive carried out a Survey of Home Contents Insurance in the Social Rented Sector in 2004/ to assess the increase in take up of local authority home contents insurance schemes and the SFHA s scheme. This showed: twenty seven local authorities operated a home contents insurance scheme tied to rent one stock transfer organisation (Dumfries and Galloway Housing Partnership) operated a scheme for new tenants, and those who transferred from the local authority The Scottish Executive (2003) 11 The Scottish Executive Development Department (2005) (p. 8 and 9) 12 Stock transfer organisations including Glasgow Housing Association and Scottish Borders Housing Association have since taken on the home contents insurance schemes operated by the respective local authorities 7

18 four local authorities Angus Council, Eilean Siar, Orkney and Shetlands Islands Councils did not operate a scheme, although they advised their tenants to take out home contents insurance provided on the open market in 2004 around 66,000 households had a home contents insurance policy provided through their local authority landlord c. 12% of local authority tenants variations in take up of local authority operated home contents insurance schemes varied from as low as under 5% in four local authorities to as high as over 20% in five areas. at September 2004, 95% of SFHA member housing associations promoted the SFHA Diamond Insurance Scheme to their tenants 13 and 8,799 housing association tenants (8.7%) had home contents insurance through this scheme. The survey showed that where comparative figures were available for levels of take up of home contents insurance before and after the promotional activity the take up of insurance amongst local authority tenants had increased by less than 10%. Overall, the level of take up of home contents insurance amongst local authority and housing association tenants increased from c. 11% to c. 12%. In summary, following the promotional activity in around 75,000 social rented sector tenants out of a total of c. 615,000 tenants 14 have home contents insurance through a scheme provided or promoted by their landlord. The Scottish Executive s survey did not attempt to assess the proportion of tenants who have taken out their own home contents insurance cover, independently from any scheme provided or promoted by their landlord. The Scottish Household Survey asks tenants whether they have home contents insurance and does not distinguish between tenants who have taken out insurance cover through the scheme provided or promoted by their landlord or whether they have taken out a policy on the open market. The latest Scottish Household Survey (2005) suggests that overall the level of take up of home contents insurance among social rented housing tenants decreased from 56.1% in 2003 to 54.6% in Although, a local authority breakdown is available for only one year, and is therefore not directly comparable to the two years data for the Scottish wide figure, the local authority level figures suggest that take up of home contents insurance amongst social rented sector tenants varied from just over 70% (in four local authority areas) to only 42%. 13 Around 5% of SFHA members do not operate the Diamond Scheme, but some of these and some of the Housing Associations that are not members of SFHA operate their own scheme 14 As at December 2005 there were 363,000 local authority and 252,000 Housing Association tenants in Scotland (Scottish Executive Statistical Bulletin Housing Series; February 2007) 15 TNS System Three Social & Ipsos MORI (2006) 8

19 They also suggest that there is little correlation between the level of take up of the local authority operated scheme and the overall level of take up amongst social rented sector tenants. For example, Angus, the only non-islands council not to offer tenants a home contents insurance scheme, is shown in the Scottish Household Survey as having 67.7% of social rented sector tenants with home contents insurance; whereas Glasgow, where the local authority/ Glasgow Housing Association provide a low cost with rent scheme to tenants, only has 42% of social rented sector tenants have home contents insurance. Since we know that around 12% of social rented sector tenants have home contents insurance provided through a local authority or the SFHA Diamond Insurance Scheme the Scottish Household Survey statistics suggest that around 42% of social rented sector tenants have taken out their own home contents insurance cover, independently from any scheme provided or promoted by their landlord. The Scottish Executive s survey of local authorities and housing associations was carried out over two years ago and has not been repeated for this study. However, evidence from the organisations that took part in the stakeholder interviews for this study suggests that there has been little change in the position since the survey was carried out in For example, the proportion of tenants insured through their local authority increased slightly in East Lothian (from 11% to 12%) and Stirling (from 8.25% to 10%) and remained static in Aberdeenshire (c. 10%). There has been a further c.10% increase in the number of Housing Association tenants in the SFHA Diamond Scheme to around 10,000, but this still represents less than 10% of Housing Association tenants (excluding Glasgow Housing Association 16 ). 2.2 Models of Insurance Provision for Social Rented Sector Tenants There are two basic models of optional insurance provision operated or promoted by local authorities and housing associations: With-rent schemes operated by local authorities. Housing Associations principally promote the SFHA Diamond scheme which is an arms length or affinity scheme (see below); although some Housing Associations also offer tenants an alternative arms length scheme or operate their own with-rent schemes. A small number of housing associations operate a third type of scheme for tenants in sheltered housing an opt-out scheme where the home contents insurance policy is automatically provided and the insurance premium is added to the service charge paid by the tenant unless the tenant chooses to opt-out. 16 Glasgow Housing Association has been excluded from the total of SFHA members tenants since it does not operate the Diamond Insurance scheme as it has taken on the scheme previously operated by Glasgow City Council. 9

20 Local authority with-rent schemes The key features of the schemes offered by Scottish local authorities are as follows: Low cost premiums No excess payment on claims No minimum security requirements Flexibility in payment with the rent (weekly, fortnightly or monthly) or payment by Direct Debit or cash/ swipe card at Post Offices or retail outlets that operate PayPoint Most schemes provide the option of taking out cover for accidental damage Same level of premium throughout the authority (i.e. no variation in premiums for different areas) A desk based review of Home Contents Insurance schemes operated by Scottish local authorities conducted for this study shows that the level of cover provided and premiums paid by tenants are very similar across the schemes. Most provide a lower level of minimum cover (and premium) for people aged over 60; usually starting at 6,000. The minimum cover for people aged under 60 is either 9,000 or 10,000. Maximum levels of cover range from between 25,000 to 35,000. Premium payments charged by the insurance provider are based on factors such as: The characteristic of the area Size of stock Overall claims experience in the area The market at the time that the scheme was tendered. For example, North Lanarkshire Council tendered it insurance scheme in 2007 and achieved substantial savings on the premium charged to tenants so that from 2 nd April 2007 the premium charged fell by around 20%. Local authorities operating a with-rent scheme will be paid a commission by the insurance provider to cover costs incurred in administering the scheme (principally collecting premiums on behalf of the insurance company). The cost of this commission is subsumed within the premium paid by tenants. The main potential problems raised by stakeholders and tenants with local authority withrent schemes relates to tenants with rent arrears. Local authority with-rent schemes do not accept applications from tenants who are in rent arrears. The impact of this restriction will vary according to the proportion of tenants who have some level of arrears. In 2005/06, c. 4.5% of local authority tenants in Scotland owed more than 13 weeks rent at the year end. The areas with the highest 10

21 proportions of tenants with this level of arrears were Inverclyde (9.6%) and Aberdeen City (9.2%). 17 Tenants who have taken out a with-rent insurance policy who then get into rent arrears may find their policy being cancelled. Local authorities will notify tenants with rent arrears of possible cancellation of their insurance policy and encourage them to address their arrears or pay the insurance cover separately. However, if the arrears are not reduced or the insurance premium paid separately the cover will be cancelled. There are no national statistics showing the number of tenants who have had their home contents insurance cancelled due to falling into rent arrears. However, figures provided by two local authorities that took part in this study suggest that the figure could be between 5% and 10%. Aberdeenshire Council reported that in 2006/07 it cancelled 70 insurance policies (c. 5% of policies) because the tenant was in rent arrears. East Lothian Council insurance section receives around 60 notifications of rent arrears per year c.7.5% of the c.800 tenants who have a council home contents insurance policy. Another potential problem with local authority with-rent schemes is that the most financially excluded tenants those who receive full Housing Benefit (i.e. their rent is paid in full through Housing Benefit) cannot take advantage of the with-rent aspect of the scheme. These tenants cannot take advantage of one of the main benefits of the scheme payment of the premium along with the rent but have to make separate weekly, fortnightly or monthly payments either by Direct Debit or in cash either at a local housing office or Post Office/ PayPoint shop. Although payment by cash means that no bank account is required, financially excluded tenants still need to budget for the regular payments. The main features of local authority with-rent schemes as listed at the start of this section are aimed at encouraging take up of home content insurance amongst tenants. However, several of the common features of local authority schemes can deter some tenants. For example: The maximum level of cover as low as 25,000 in some schemes may not be high enough for some tenants Some schemes do not provide cover for personal possessions outwith the home or for high value goods. Some schemes do not provide cover for Accidental Damage. The housing association arms length scheme SFHA has been promoting an arms length home contents insurance scheme on behalf of its members since This scheme known as the Diamond Insurance Scheme was brokered and is administered on behalf of SFHA members by Jardine Lloyd Thomson. As well as brokering the scheme between SFHA and the insurance underwriter (currently 17 Accounts Commission (2006) Housing Performance Indicators 2005/

22 Royal Sun Alliance) Jardine Lloyd Thomson also collects the premiums from tenants and administers any claims made by policy holders. The main feature distinguishing the arms length scheme promoted by housing associations from the with-rent scheme operated by local authorities is that housing associations merely promote the scheme to their tenants they do not take any part in administering the scheme through collecting premiums or administering claims. Housing association tenants who take out insurance through the Diamond scheme pay their premiums to Jardine Lloyd Thomson and not to their landlord. Several of the key features of the Diamond scheme are similar to those highlighted above for the local authority with-rent schemes: No excess payments on claims No minimum security requirements A lower level of minimum cover ( 6,000) and premium is available for people aged over 60 The minimum level of cover (except for people aged over 60) is 9,000 and the maximum amount covered is 30,000 However, there are several differences: Payment cannot be made with the rent although the monthly payment can be made either through a Direct Debit or by cash at Post Offices There are three area-based levels of premium based on claims experience and other factors that might affect the level of claims The scheme does not provide accidental damage cover. Although 95% of SFHA s members and promote the Diamond Insurance Scheme to their tenants several SFHA members operate or promote other schemes, either alongside the Diamond Scheme or as an alternative. For example, Home in Scotland, part of the Home Group of Housing Associations operating throughout the UK, has since December 2006 provided its tenants with the choice of either the Diamond Insurance scheme or the Simple scheme operated by Home in Scotland. The Simple scheme is available to all Home Group subsidiaries in the UK and is operated through the Northern Housing Consortium (a consortium of 170 local authorities and Housing Associations in Northern England). It differs from the Diamond scheme in having slightly lower premiums, a higher maximum level of cover and including the option of taking out cover against Accidental Damage. GHA and other Housing Associations established through wholesale local authority stock transfer operate home contents insurance schemes inherited from the local authrority rather than the SFHA s Diamond Scheme. (See Appendix 2) 12

23 The opt-out scheme This scheme differs from the with-rent and arms-length schemes outlined above in one significant way: tenants are automatically provided with, and charged for, the insurance policy when they take out their tenancy unless they choose to opt-out. That is, this is an opt out scheme rather than an opt-in scheme. Hanover (Scotland) a Scottish housing association specialising in providing sheltered houses for the elderly has operated its own opt-out home contents insurance scheme for tenants in sheltered housing since The sheltered housing tenants pay a service charge on top of their rent and the insurance premium ( 45 per year) 18 is included within that charge. All tenants have the same level of cover - 10,000 household contents and 750 personal belongings. A top up rate is available for people who want higher level of cover and around 200 tenants take this option. The scheme does not cover against Accidental Damage. Over 95% of Hanover (Scotland) s 4,000 sheltered housing tenants have home contents insurance cover through their landlord. Only around 170 tenants have chosen to opt out of the scheme. Many of the tenants who have opted out have taken out their own insurance cover, usually providing a higher level of cover and other benefits such as cover against Accidental Damage. The opt out scheme operated by Hanover (Scotland) has the benefit of forcing tenants to take a decision to opt out of taking the home contents insurance cover and the evidence suggests that only a small proportion of tenants will opt-out. However, the opt-out scheme is only really available to Registered Social Landlords that provide some form of factoring service for which a service charge is made such as for sheltered housing.. The other restriction with the opt out scheme is that in order to keep premium payments as low as possible to minimise the number of tenants who might opt out because of cost, the level of cover provided is at the lower end of what might be required by tenants. This may be suitable for most tenants in sheltered housing but might not suit all and would be less appropriate for other tenants (e.g. families that tend to have more possessions such as electrical and electronic equipment). 18 Hanover (Scotland) s insurance broker tendered all the association s insurance cover in early 2007 and achieved significant reductions on premium payments. The lower cost for home contents insurance may be passed on to tenants by way of improvements in cover rather than a reduction in the 45 per year premium payment. 13

24 3. REASONS UNDERLYING CHOICES MADE ABOUT HOME CONTENTS INSURANCE This chapter will consider the three key questions which this study set out to answer: Why do tenants not take out home contents insurance? Why tenants do take out home contents insurance? What works to increase take up of home contents insurance? It will consider the findings of three previous studies that have considered the reasons underlying the choices made about home contents insurance amongst social rented sector tenants and will also introduce evidence from primary research the stakeholder interviews and the tenants discussion and focus groups undertaken for this study. 3.1 Why do tenants not take out home contents insurance? Three previous studies that have considered the issue of the low level of take up of home contents insurance amongst certain sectors or communities were reviewed for this study: Paying for peace of mind: Access to home contents insurance for low-income households (1998) 19 Widening the safety net: Learning the lessons of insurance with-rent schemes (2005) 20 Identification of barriers to tenants take-up of low cost, high quality household contents insurance promoted by their landlord (2006). 21 The first two provide a general overview of the issue at a UK level, providing both secondary and primary research evidence. The third report was commissioned by SFHA with the support of their insurance broker, Jardine Lloyd Thomson to explore levels of take up amongst housing association tenants in Scotland. Appendix 3 provides a summary of the methodologies used by these three studies. Paying for Peace of Mind The Paying for peace of mind study, which was carried out by the Policy Studies Institute and the Institute for Public Policy Research in 1998, considered the level of take up of home contents insurance in all tenures. Its main findings were that: 19 Whyley C, McCormick J and Kempson E (1998) Paying for peace of mind: Access to home contents insurance for low-income households (Policy Studies Institute) 20 Demos and SAFE at Toynbee Hall (2005) Widening the safety net: Learning the lessons of insurance with-rent schemes (Demos) 21 Dr Hood J, Dr Stein W and McCann C (2006) Identification of barriers to tenants take-up of low cost, high quality household contents insurance promoted by their landlord (Unpublished report for the Scottish Federation of Housing Associations 14

25 In 1998 around 20% of all households in the UK did not have home contents insurance Uninsured households were predominantly tenants and were disproportionately likely to have low incomes About half of the households interviewed for the study who were without home contents insurance had had a policy in the past but let it lapse, largely because they were facing financial strain The other half were mainly people on the margins of financial services who tended to have no bank account or savings. The group who did not have home contents insurance consisted: primarily of young, white households, mostly single but with high proportions of young families and lone parents. Many of the household heads are unemployed, have low incomes, are without bank accounts and have little, if any, money in savings. Most are tenants, living in deprived areas. The report went on to suggest that: it is financial strain the demands made on household income and the cost and availability of home contents insurance, rather than simply income level, that determine the odds of a household being insured. In addition, personal characteristics [such as age, financial circumstances and attitude to risk] meant some households were less likely to feel they need home content insurance. The report suggested that uninsured households were mainly aware of the risks they faced, especially in relation to burglary rather than fire or flood and divided uninsured households into four groups according to how they assessed risk and made decisions about insurance. Risk averse People who are acutely aware of risk and very anxious to mitigate it effects; they may have tried to get insurance but were prevented by problems of access and price. Risk calculators People who make an assessment of their personal risks and weigh these against the cost of insurance. Many of this group decide not to insure because they feel they face low risks or have few possessions to protect. Risk resigned People who are broadly aware of the risks and possible consequences of not being insured but because of tight financial circumstances may have been marginalised from financial services and are fatalistic about their circumstances. Risk unaware People who tend to have a relatively relaxed view of life and are less likely to have recent experience of a fire, flood or burglary. 15

26 The Paying for peace of mind report suggested that the provision of insurance to low income households through intermediaries such as local authorities or housing associations can overcome many of the barriers faced by households on low incomes, such as, marketing, policy conditions and affordability. Landlords can use their purchasing power to arrange home contents insurance cover at lower premiums than individual tenants can obtain from high street insurers. Acting as intermediaries, landlords can explain the insurance product to tenants with low levels of financial capability and with-rent schemes can overcome problems of financial exclusion (e.g. not having a bank account) faced by some tenants with low incomes. It recommended three measures to try to increase take up of insurance through landlord intermediaries: Expanding provision of with-rent schemes Improving take-up through active marketing Addressing poor levels of home security found in the most excluded areas in order to reduce the cost of insurance. The first two of these recommendations have been the central element of the Scottish Executive s strategy to attempt to increase take-up of home contents insurance amongst social rented sector tenants since However, as has been shown by the latest Scottish Household Survey and the Scottish Executive s own survey although almost all registered social landlords provide or promote an insurance scheme to tenants and there was a substantial marketing campaign in 2004 this has not been enough to increase the overall level of take-up of home contents insurance amongst tenants. Widening the safety net The Widening the safety net study was carried out by the think tank Demos and SAFE at Toynbee Hall in Building on the evidence from the 1998 study it identified the following as being the key barriers to social rented sector tenants accessing insurance: Poverty: UK surveys show that only half of people in the lowest income decile possess home contents insurance compared to 78% of the adult population as a whole. Product Design: Products that require direct debit payment deny access to the unbanked although measures have been taken to reduce the level of the unbanked problem, many households on low incomes do not have bank accounts or, even if they do, they are unable to commit to taking out direct debits because of the irregularity of their income and/ or the lack of disposable income. Long term products, such as insurance cover, which is taken out on an annual basis, require a stable income. 16

27 Perceptions: Some young people believe that they do not need insurance because they do not have enough belongings. Some people, mainly young single people, think it is not for people like them. People are confused by the messages and adverts and do not know which product they should choose. General lack of trust in the industry (fear of the small print and of being denied claims). This study grouped people who do not have home contents insurance into four categories. The constrained The largest group of uninsured people are those who believe that they simply cannot afford it. The carefree People who believe insurance is only for those with something to worry about a large number of possessions, old age or misfortune. These people focus not on, counting the pennies, but on living the good life with which they make little connection with insurance. The confused People who are nervous or confused about financial services in general and insurance in particular. These people may also be anxious about the hidden meanings in adverts or policy documents. The incredulous People experiencing social exclusion can be distrustful of insurers and perhaps of insurance itself summed up by the quote: you think you re insured and then there s always a get out clause. The Widening the Safety Net study reviewed measures taken by the UK government to tackle access to financial services generally, and the development of with- rent schemes for home content insurance specifically, as means of addressing low take-up amongst low-income households. Echoing some of the findings of the earlier study, the 2005 report suggested that withrent home contents insurance schemes are more popular than other insurance for three main reasons: They work through trusted intermediaries rather than by a direct relationship between the insurance company and the client This intermediary offers advice and support for the client 17

28 The popularity of schemes travels by word of mouth, a form of recommendation that people trust. It suggested that take-up of home contents insurance among social rented sector tenants could be increased through both increasing the coverage of insurance schemes provided by intermediaries (landlords) and also increasing customer uptake within schemes. Again this recommendation fits in with the measures taken to date by the Scottish Executive. Barriers to tenants take-up of low cost contents insurance amongst housing association tenants The most recent study carried out in 2006 looked at the barriers to take up of insurance amongst tenants of housing associations in Scotland. This report was commissioned from the Cullen Centre for Risk and Governance, Glasgow Caledonian University by the SFHA supported by the SFHA s insurance brokers, Jardine Lloyd Thomson. The study surveyed housing association managers and undertook one focus group of tenants from the Glasgow Housing Association (GHA) to gain an understanding of why some take up of home contents insurance promoted by Scottish Housing Associations remains relatively low. In summary the housing association managers who responded to the survey suggested that: Home contents insurance would not be a priority for tenants on a low income or who have experienced past debt issues. In addition, there is a suggestion that many tenants may be under the impression that their housing association covers their contents insurance as well as building insurance. The focus group with GHA tenants suggested that tenants who do not have insurance: in particular the unemployed and disadvantaged did not perceive insurance as a priority, despite the fact that they may see its benefits. In a world of competing financial demands and a low/ fixed income, many in this position would either not consider or simply dismiss the notion of insurance. Findings from primary research The primary research for this latest study has focussed on interviews with stakeholders who provide or promote home contents insurance schemes to local authority or housing association tenants and a series of small discussion groups and focus groups with tenants in three areas. The small discussion groups involved a total of 25 tenants of whom: Seven had insurance cover provided or promoted by their landlord Eight had private insurance cover Ten had no home contents insurance. 18