2.5m low income renters risk financial distress due to lack of insurance

Low-income-renters-risk-financial-distress

2.5 million renters in low-income households risk financial distress as lack of insurance prompts use of credit to replace household losses.

  • 61% of UK renters in low-income households have no contents insurance
  • One in three (33%) have had a potentially insurable loss in the last five years, rising to nearly half (47%) amongst 18-34-year olds
  • Of these, a quarter (27%) with no contents insurance, equivalent to 250,000 people, relied on credit to replace or repair their belongings
  • Renters with low incomes are more likely than other groups to suffer damage or loss of household contents from burglary, fire or flood
  • Seven in ten (73%) low-income renters say they would find it impossible to meet an unexpected bill of £500 without help from an external source
  • Lack of contents insurance amongst low-income renters can adversely affect emotional wellbeing.

2.5 million UK renters with incomes under £17,000 a year may be at risk of spiralling financial difficulties through a lack of household contents insurance, warns an independent research report for Aviva.

With low income renters more likely than other groups to suffer damage to, or loss of, possessions by burglary, fire or flood4, the report’s findings highlight that a lack of insurance is contributing to poor financial resilience and leading to a worrying use of credit and payday loans to replace or repair items.

The report, authored by Matthew Oakley of WPI Economics for Aviva, finds that one in three (33%) low-income renters have experienced a potentially insurable loss over the last five years. Yet despite the availability of contents insurance for as little as £1.30 a week for social housing tenants, there is a significant gap in the take up of contents insurance amongst low-income renters, with just 37% having cover in place.

When belongings owned by low-income renters with no insurance were lost or damaged, nearly one in three (27%) resorted to credit cards, payday loans or bank loans to replace or repair the goods.  As a result, almost all (95%) of those who did found that their long-term finances were adversely affected to some extent.

The research findings also show that lack of household contents insurance amongst low-income renters can have a distressing impact on the emotional wellbeing of an already vulnerable section of our society. Of those who say they would need to rely on credit if they experienced losses of £500, two in five (38%) say that they would find replacing their possessions stressful.

The report calls on the Government, insurers and organisations in social and private rented housing to innovate and build on existing initiatives and to focus on the vital role that insurance can play in boosting financial resilience and reducing financial distress.

It also highlights the work that Aviva is undertaking with leading not-for-profit social lender Moneyline as part of Cohort 5 of the FCA Regulatory Sandbox. This is to pilot a home contents insurance product for low-income customers that can be arranged at the same time as taking out a loan to provide protection against financial shocks.

Adam Beckett, Product Director for Aviva UK General Insurance, said: “It is concerning to see just how exposed many low-income households are to the financial and emotional impacts of their belongings being lost or damaged. Replacing costly TVs, phones, laptops and jewellery, especially through use of credit, can exacerbate financial distress and, as the report shows, give rise to stress and feelings of embarrassment and insecurity."

At Aviva we are committed to finding ways to improve the financial resilience of low-income households. Alongside the affordable tenants contents cover that we provide through Aon and other brokers to those in social housing, we are currently working with Moneyline to pilot a home contents insurance product for low-income customers. We hope that this will prove the worth of insurance to this vulnerable sector of society that are traditionally under-insured and lacking in financial resilience.

Findings in the report include:

  • Seven in ten (72%) low-income renters are worried about their financial situation. Half (51%) currently have no savings at all and one in six (16%) say they have missed the deadline for a scheduled debt repayment in the last month. Three in ten (28%) believe that their personal finances will worsen over the next six months.
  • 73% low-income renters also say they would find it impossible to immediately pay an unexpected bill of £500 without resorting to help from an external source (such as friends, family, a payday loan or credit). 62% said they would find it impossible to meet a bill of £250 themselves.
  • This low level of ability to meet unexpected bills is particularly concerning given that data from Aviva’s tenant’s contents cover insurance scheme shows that the average payment on a claim is £551. Average claims for some specific circumstances were much higher, for example; flood (£3,610); theft (£1,273); and fire (£2,018). Given the size of these pay-outs, the majority of low-income renters, would be highly unlikely to be able to meet the costs without insurance protection.
  • One in three (33%) low-income renters, equivalent to 1.4 million people, have experienced a potentially insurable loss over the last five years. Younger people aged 18-34 are particularly like to have experienced a loss in the last five years that potentially could have been met by insurance cover (47%).
  • Figures from the Association of British Insurers have also shown that low-income households face higher risks, with tenants in social housing twice as likely to be burgled as owner-occupiers, arson rates 30 times higher in low-income communities than higher-income, and low-income households eight times more likely to be in a tidal floodplain than more affluent households.
  • Despite these greater risks and clear needs, there is a significant gap in the take up of contents insurance amongst low-income renters. Just 37% have a contents policy, leaving 2.5 million (61%) of low-income renters at risk financially if they suffered a loss or damage to their belongings.
  • In the last five years, 27% of low-income renters without contents insurance resorted to credit cards, payday loans or a bank loan to repair or replace to their belongings, equivalent to around 250,000 people. More worryingly, nearly all (95%) of these said using credit negatively impacted their longer-term finances to some extent.
  • Amongst low-income renters who said they would need to rely on credit if they experienced a loss of £500, two in five (38%) say they would find the process of replacing their possessions stressful, and close to a quarter would be upset (23%) or anxious (22%).
  • More than half (54%) of low-income renters identified with at least one negative emotion around not having insurance. 51% identified feelings of vulnerability, 38% nervousness, 38% insecurity and 34% stress in relation to their living situation because of their lack of cover. 

CLICK HERE TO SIGN UP FOR OUR
FREE BI-WEEKLY NEWSLETTER

Latest video

Aviva video: Uncertainty in the mid-market space

Watch this video to learn more from Aviva’s Ben Sanders on the importance of supporting your clients through market uncertainty so they can continue to grow.If you... click here for more