What we learned about access to insurance from the Big Lottery Fund

In many ways general insurance (forms of insurance other than life insurance, e.g. home contents or motor insurance) is the hardest issue to assess in relation to the poverty premium. Not least because of the relatively little specific research we have on the subject.

When the Financial Inclusion Commission carried out research in 2016 on the issue, they referred to it as “the missing piece of the jigsaw”: whereas credit and debt related financial exclusion or poverty has a wealth of relevant research, from the voluntary sector, industry, and academia, this subject doesn’t.

So it was good to see this issue as a major focus of the recent research by the Big Lottery Fund, as part of building up a wider evidence base for the Government’s dormant accounts financial inclusion initiative.

The other reason insurance is a more complex issue has to do with access and exclusion. On the one hand, while our campaign against the poverty premium deals with typically low income households paying higher premiums on the insurance policies they access, another major issue is those premiums being so high it prohibits any engagement with insurance whatsoever.

For those experiencing the insurance poverty premium, we know from Bristol’s pivotal research that around a third of low-income households paid for their car and home contents insurance monthly (which incurs a premium) because they could not afford to pay annually upfront. Also, area-based premiums relate to higher premiums for insurance cover in higher risk areas, where we know low income households are more likely to live.

But also there’s the exclusion problem: 60% of people with an income of £15,000 or less have no home contents insurance, and they are also much more likely to be burgled, victims of arson, or live on flood plains.

Is this exclusion an example of active consumer disengagement? In other words, are low income households making informed, rational decisions that the cost of insuring their home contents does not stack up for them? Or are the prices too high, necessitating a low-cost or ‘basic’ solution — much in the same way as we have basic bank accounts today.

The new report from the Big Lottery Fund provides us with some extremely useful qualitative interview data describing low income people’s attitudes to insurance, to help us start to answer those big questions.

They find that attitudes to insurance are driven by ‘social norms’, for example if friends and family have insurance then it starts to become a more attractive thing to obtain. Some interviewees said that having contents insurance gives them peace of mind and if for whatever reason they were unable to afford it this would cause them considerable worry.

But views differed among those they spoke to on the relevance of having insurance. Some, particularly younger people, didn’t really know what insurance was, or what exactly it was for. Some felt that they didn’t own anything worth insuring, and that insurance wasn’t “for them”.

Among both those who had positive and sceptical attitudes to insurance, many felt accessing good information on insurance was difficult. Even using comparison websites would be cumbersome and confusing. This is supported by the research from the Financial Inclusion Commission, which found that almost 1 in 5 adults thought the information provided by insurers was difficult to understand (19%), rising to a quarter (25%) among young people aged 18–25.

Many of the people interviewed who didn’t have insurance said it was because it was too expensive — highlighting that cost was a big factor for why people didn’t have cover. The perception of high cost, as the report says, puts people off, “as does the upselling of add-ons at the point of signing up, and excess charges.” Also, some people they spoke to felt that insurance products had to be paid for upfront in one lump sum.

What the report finds overall is that individuals who have had direct experience of loss (e.g. burglary or fire) see the benefits of insurance quite clearly. People who have had minimal or no direct experience less so.

This coincides with the view of Fair By Design: while there is very direct evidence showing that people on low incomes often pay more for their insurance for a variety of reasons, for those that don’t access it the reasons also vary.

These include being obliged to live life in the ‘now’, where future what ifs, such as protecting a home against burglary, are seen as a luxury and unnecessary. This is a subject we will be focusing on in the coming months.