In its report, Protecting Generation Rent, the leading pensions and financial services consultancy reveals an annual rental ‘protection gap’ of £30bn. It found that 18% of UK renters believe they have some form of income protection insurance in place, should they be unable to work due to illness, leaving a potential market of nearly 8 in 10 renters without cover.
In the ten years from 2007 to 2017, the rental market in the UK has almost doubled to represent 4.5 million households. The number of ‘middle-aged’ renters (between the age of 45 and 65) has also soared to around 35% of the renting population. Today’s renters are therefore more likely to be older and to have a family than in previous years, meaning they have a bigger need for protection than ever before. Individuals are now, on average, likely to rent for at least 10 years, often moving across different properties.
The research found that a fifth of renters are concerned about being unable to pay rent because of being ill and unable to work. This was the second highest concern after a landlord increasing the cost of rent to an unaffordable level (22%). It also overtook fears such as the prospect of being made redundant (18%) and a landlord ending a tenancy without sufficient warning (17%). The results also showed that cost was not necessarily a barrier to taking out income protection. In fact, when asked to consider how much they would pay for such a product, 38% of respondents were willing to spend up to £20 a month for a product that would pay out for up to 12 months, with a further 19% happy to increase that monthly spend to £30. Hymans Robertson conducted its own analysis on the level of premium individuals could have to pay. It found that premiums could be as low as £14 a month for a 40-year-old, non-smoker with a payment period of one year.
Richard Purcell, Technical and Innovation Lead at Hymans Robertson explains the need for insurers to innovate:“The renting population is changing fast and the opportunities are there for the insurance market to evolve and reflect this. Our research shows that the UK’s renting population can no longer be classed as ‘homeowners in waiting’. Renters are now more likely to be older with more chance of having families and responsibilities so it’s not surprising that these are the renters most concerned about being unable to pay rent due to illness or inability to work.
“When asked to put themselves in this position, most respondents said they would use their savings to pay rent (33%) but how long can we realistically expect this to last? Our research shows that the cost of premiums won’t necessarily be a barrier to most renters however more clearly needs to be done to help them understand their protection requirements and highlight the availability of these products.”
Explaining how insurers can appeal to this market, Richard continues: “There are a huge number of opportunities for the insurance industry to provide products that suit today’s growing population of renters. With just a few small changes, many existing products can be adapted to be more flexible and best suit their needs. Offering flexibility in cover amount for example, making it easier to port or change protection in the event of rent changes or relocation would benefit many renters. They also have a much shorter planning time horizon than home owners so products should be adapted to suit that by providing shorter cover terms of two years or less. However, one fundamental question that insurers will need to answer is how best to inform, educate and distribute in this market. Where traditional distribution methods are not working, it will be exciting to see what new routes to market will be used. All in all, the changes required by insurers to seize this opportunity should be relatively easy to implement and could go a long way in making products more appealing and acceptable to rental consumers.”
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