Protecting generation rent

Siobhan Lough and Richard Purcell look at the needs of renters, and how the insurance industry can serve them better

Sales of protection policies in the UK have long been closely linked with people buying homes or remortgaging, thanks to mortgage advisers discussing their protection needs. When it comes to renters, however, few have protection in place. The recent coronavirus pandemic has highlighted that renters are more financially exposed than other groups in society. Should the insurance industry be doing more to serve this important and growing part of society? We looked at the size of the rental market and conducted a survey of 1,000 renters across the UK in order to better understand their needs – and how the  insurance industry can serve them more effectively.

The UK rental market

Renters are a growing section of society. The number of renters rose from 2.8m households in 2007 to 4.5m in 2017 – an increase of more than 60%.  It’s predicted that 25% of UK households will be renting by 2021. This has been driven by several factors, including a lack of new homes for people to buy, which has made it more difficult to get onto the property ladder.

We typically think of renters as young homeowners-in-waiting, but this is not necessarily the case. Almost one third of our survey respondents were aged 45 and over, and this proportion has been increasing. Unsurprisingly, we also found that the total time spent renting increases with age. For renters aged 55 and over, the average time spent renting was around 14 years. This implies that a large proportion of this group were previously homeowners for several years. There could be a variety of reasons for this, including moving for a job, or family breakdown leading to sale of the home.

Another group is families. Traditionally, people would wait until they had bought a home before starting a family, but that pattern is being reversed and many are deciding to start a family while renting.

Overall, we identified three key types of renter: homeowners-in-waiting, young families, and former homeowners. Each of these segments may be at very different stages in their life, so the needs of the rental protection market can be wide ranging.

What are renters’ concerns and needs?

To assess the concerns of renters, we asked them how likely a range of events were to happen to them. One fifth of renters said they were likely to be unable to work due to illness. Compare this with just over 10% citing that theft of their contents was likely – and yet contents insurance is the most widely purchased insurance cover among renters. This highlights the need to inform renters of the financial implications of being too ill to work and the products that are available to address this risk.   Figure 1: Renters’ reponses to the question ‘How likely are the following scenarios to happen to you?

To understand what mitigations renters had in place, we asked how they would cover the cost of accommodation if they were too ill to work. One third said that they would use savings to cover rent, this being the most popular response. Other responses included relying on state benefits or moving to cheaper accommodation. Our research showed that nearly half of respondents had less than £2,000 in savings. Given that the average UK rent is approximately £940 per calendar month, savings would only provide cover for around two months, so relying on them is not a realistic solution for many.

An opportunity for the protection industry

To understand how under-served renters currently are in the UK, we performed our own analysis to calculate the ‘annual rental protection gap’. This is the difference between the total rent paid in the UK each year and the amount of protection already in place, allowing for the fact that not all renters will be able to afford protection. We arrived at an annual rental protection gap of £30bn. If all those renters had protection in place, it would translate into an estimated £400m in additional annual premium income. This represents a significant opportunity to serve the needs of renters and grow the protection market.

What should insurers do to better serve this market?

Our analysis showed that the price of income protection policies is not a significant barrier. Instead, we should consider product design, marketing and distribution.

In terms of product design, one difference between renters and homeowners is that renters are likely to move more often and therefore require greater flexibility in cover. For example, renters may relocate, extend their tenancy agreement or decide to purchase a property. It would be useful if they could port or change their protection in all these circumstances without needing to go through underwriting again. As we’ve seen, renters are concerned about a whole range of different risks, from illness to theft and redundancy – so being able to offer products that combine or promote the take-up of multiple covers may be attractive. In fact, we have already seen some providers develop new products for the rental market during the past year.

The other area the industry should focus on is distribution. Our research showed that most renters were not having a conversation about their protection needs at any point during the renting process – but more than 80% of them said they would have found it useful. The next question is: when would be a good time to have that conversation in the letting journey? Our research showed that 40% of renters want to be informed about the products available to them after finding a property but before they had signed the lease; 26% said the best time was when they started to look at properties.

Who should have these conversations?

It’s useful to examine what channels renters use to find accommodation, and therefore who they’ll meet. A third of our respondents found accommodation directly through a letting agent, a quarter on property websites such as Rightmove and Zoopla, and a further quarter through family and friends. Trust is also important. Our research showed that most renters would appreciate having someone independent from their letting agent to provide advice, suggesting that letting agents could play a role as an introducer before handing off to a specialist adviser. Banks and employers also featured as potential trusted sources, particularly for younger customers.

Overall, our research highlighted that renters are not financially resilient in the event of losing their income due to illness. Many also have unrealistic expectations, or don’t know how they’d cover rent in such circumstances. To  avoid being forced to move, individuals need more robust plans, including having income protection in place. With more people renting than ever, and numbers only expected to rise, there is a great opportunity for insurers to meet the unserved needs of this growing section of society through new products and distribution.

Siobhan Lough is a consultant in the Life and Financial Services practice at Hymans Robertson

Richard Purcell is insurance innovation lead for the Life and Financial Services practice at Hymans Robertson

Picture Credit | iStock