How can insurers increase accessibility for the uninsured?

Millions of people in the UK don't have the insurance coverage they need. That's leaving them vulnerable to high costs if they crash their car or their home is damaged.

At Confused.com, we estimate that 10% of Brits don't have home insurance at all. Meanwhile, research from the Rebuilt Cost Assessment suggests that as many as 83% of UK properties are underinsured.

If they're uninsured, consumers can find themselves at great financial risk. If disaster strikes and there's no home insurance policy in place, they could be left without a home. A high proportion of uninsured consumers affects insurers, too, as it limits their number of customers.

In this article, I discuss why so many consumers are under and uninsured. I also suggest strategies for insurers to help improve accessibility to those who often don't need insurance the most.

Why are so many people under and uninsured?

Uninsured customers are those who don't have insurance at all. A customer is considered underinsured if they don't have comprehensive coverage. For example, only having third-party cover for their car insurance, or no contents cover.

With car insurance, being uninsured is a criminal offence, so it's fairly rare. The Motor Insurers' Bureau (MIB) estimates there are around 1 million uninsured drivers on the road (vs around 42 million drivers).

But when it comes to home insurance, having insurance isn't a legal requirement and being uninsured is much more common. Similarly, people may be underinsured: they don't have cover for their property's full value, or they have buildings but not contents cover.

So why are people not getting the insurance they need? There are 4 main reasons this happens:

1. Customers may not be able to afford their premiums

The price of a consumer's insurance premium is based on risk. Insurers determine this based on certain factors about the customer, such as how they drive or the types of locks they have on their front door.

After collecting the information they need, an insurer makes a risk assessment. If an insurer believes a customer is at greater risk of making a claim, that customer typically pays a higher premium.

Risk assessments are a crucial part of the insurance industry. For example, if a homeowner lives in an area prone to flood damage, they're quoted a higher premium.

Customers whom insurers perceive as 'risky' may find insurance quotes more expensive than those with 'safer' risk profiles. As a result, they may choose not to have insurance at all - becoming uninsured.

Alternatively, they may choose a cheaper level of coverage than they'd like.

For instance, rather than getting comprehensive contents cover, a customer might decide to reduce it or eliminate it altogether. This is concerning, as we estimate that the average home has £51,646 worth of contents.

2. Some consumers may not be able to afford premiums because of their demographic data

While insurers use consumers' personal histories to calculate premiums, they also use general demographic data. For example, they consider where a customer lives or what job they do.

If a customer shares certain characteristics with other high-risk individuals, insurers may raise their premium.

The classic example is that properties in some postcodes can be more expensive to insure than others. For example, the Insurance Business Magazine reports that customers who live in an area with a higher crime rate could pay more for their home insurance.

That's because they're deemed higher risk and more likely to have their home burgled or vandalised.

Of course, this isn't to say that consumers can't reduce premiums by taking action. For instance, they could add a security system to their house to deter burglaries. This isn't always affordable for every consumer, though, and can lead to some customers opting out of certain covers altogether.

The same applies to car insurance. The Financial Times found that the cost of car insurance is different between deprived areas and wealthy ones, even when the driver and vehicle are the same.

3. Insurers may be reluctant to cover some customers or damages at all

In extreme cases, consumers may not be able to access insurance at all.

This can happen if customers live in an area with a high flood risk. If insurers know that claims are going to be frequent and expensive, it may just cost too much to cover these properties.

And due to climate change, we're likely to see more areas at risk of environmental damage. This is already happening in the US, where the largest home insurer, State Farm, has recently pulled all home insurance policies in California. This is due to what it calls 'growing catastrophe exposure'.

This hasn't happened yet in the UK. Thanks to schemes like Flood Re, consumers in high-risk areas can get more affordable insurance. Still, this is exclusively for flood-risk areas. It's possible that insurers will judge some areas as too risky to insure due to other climate risks.

And if insurers are reluctant to cover high-risk areas, this could increase the number of uninsured consumers. For instance, home insurance policies that cover weather damage may become more expensive - and higher numbers of uninsured customers could be the result.

4. Consumers don't have insurance because they don't know the risks

A surprising yet common reason for consumers being uninsured is that they just don't know the risks. They may not know they don't have insurance, or they might choose not to buy insurance at all.

The ABI found that 1 in 5 households are underinsured because the owners underestimate how much their contents are worth. That means they aren't fully covered if they need to make a claim.

This lack of understanding means many people are missing out on protection. And, for insurers, a large market is going untapped.

Why is it such a problem if people are under and uninsured?

High numbers of uninsured and underinsured consumers are bad for both insurers and customers.

From the customer's perspective, if they don't have the right cover, they won't have the protection they need if something goes wrong. For example, if their home is damaged in a storm, they're left to cover the costs themselves. Confused.com data (from August 2022 - July 2023) shows that the average claim for storm damage is £3,334 for contents insurance and £3,108 for buildings.

Less affluent households are also paying a 'poverty premium' for any coverage they have. For example, some people buy smaller policies to cover individual items if they can't afford full home insurance coverage. And that means they end up paying more overall.

For insurers, under or uninsured customers are a problem for an obvious reason: These are all people who could be insurance customers and who aren't. They represent a new customer market.

So, what can insurers do about it?

What can insurers do to improve insurance accessibility?

Access to insurance isn't a new problem, but the cost of living crisis is making it worse.

Charities and think tanks such as Fair By Design and the Institute and Faculty of Actuaries have proposed some solutions that may help the uninsured. These include:

• Removing the extra costs of paying monthly for premiums
• Getting greater transparency on how insurers calculate these premiums

With that in mind, here are 5 ways insurers could increase accessibility:

1. Use more accurate data to assess risk and define premiums

Relying too heavily on demographic data such as postcodes can risk penalising people who aren't actually high-risk customers.

A more accurate way to calculate premiums could be to use more data that doesn't rely on stereotypes. Insurers could supplement the information they already collect on customers with further data points to better understand an individual's risk.

Insurers can access this data through smart home devices, which monitor aspects of the home environment like security systems, fire alarms, and even water leakage sensors. These devices help to reduce the risk of a claim being made, which may be reflected in an insurer's premiums.

Insurance companies need to be confident that the policyholder can afford their premium. Open banking, another technology that insurers are using, allows them to access a consumer's financial data with permission, such as their credit scores, in real-time. THis information can be shared with just a few taps and could simplify the information sharing process (which then informs premiums).

2. Provide better education on the value of insurance

Many people are uninsured due to a lack of education about the importance of insurance. For example, in a 2021 YouGov poll of UK students aged 18-24, 31% claimed they didn't understand what contents insurance covers.

Meanwhile, from customer feedback, we've found that many renters feel that they just don't need home insurance.

But while they don't need buildings cover, which is the landlord's responsibility, they would probably benefit from contents insurance. According to our data, the average home contains £51,646 worth of contents.

This data shows there's significant opportunity for much better information on why people need cover and the risks of not being covered. And it's insurers that are best placed to provide this. If consumers have a clearer understanding of the value of insurance, fewer are going to be uninsured.

Consumers could also benefit from greater transparency on the factors that affect the cost of premiums, as Fair By Design has suggested.

For example, insurers could do better at explaining the importance of a credit score, or how specific technologies such as house locks can affect premiums. If consumers know better, they could improve these factors themselves - and benefit from lower premiums in the future. 

3. Offer better products for certain demographics, such as renters

One demographic that's overrepresented among the uninsured are renters. According to Nationwide, 52% of tenants in the UK don't have any contents insurance.

This is likely for many of the same reasons I've outlined, including issues of affordability and a lack of awareness of the importance of insurance. But it's compounded by issues specific to renters. For example, many tenants may not know how long they might stay in the property - and so may think that contents insurance isn't worth getting.

This is a huge untapped market for insurers, especially as the rental market is predicted to keep growing. That's according to statistics published in The Guardian.

To reduce the number of uninsured renters, insurers can offer products that are specifically designed for them.

Insurers like Lemonade have already jumped on this. They've introduced flexible insurance products with shorter leases, and an option to only cover specific, valuable items such as a laptop, bike, and work clothes.

By offering more flexible insurance products, insurers can convert those uninsured renters into customers. 

4. Consider pushing for more government regulation

In response to the issue of uninsurance, some charities have pushed for intervention from the government.

Fair By Design has called for regulations on the transparency of how insurers calculate premiums. They've also asked the government to determine a basic level of coverage needed by low-income families, to help protect them against specific financial shocks.

Other schemes such as Flood Re have seen the government and insurers work well in the past. Flood Re requires that all customers pay a small levy on their premium into a pool to cover the cost of consumers in flood-prone areas. It allows insurers to access that pool of cash if they have to pay out to flood victims.

As a result, people who live in these flood-prone areas can insure their homes, without insurers having to take on that additional financial risk. This could be a model for other initiatives to help the uninsured. For example, if insurers are reluctant to cover a certain postcode, the government could step in to cover their losses.

It would be a win for both insurers and consumers. Consumers could have more affordable insurance premiums, and insurers could cover more consumers without concerns about financial loss.

How is Confused.com helping with accessibility?

At Confused.com, we help both consumers and insurers to manage the challenges of uninsurance. Here are 4 steps we're taking:

• We provide deeper information for customers about different policy options. For example, we provide useful explanations for home insurance customers about the specifics of their policies. When customers apply for insurance, we provide easy to understand diagrams of different door locks and how they affect their policy. This way, they can better understand what they’re buying.
• We give customers access to a greater number of options. We invite as many insurers as we can to our panel, so customers can access the best deals for their specific needs. We also include challengers such as Urban Jungle that offer flexible and innovative policies, including insurers for renters.
• We ask consumers more questions. This gives our insurers a more accurate risk profile of their customers. Then, insurers can offer more accurate premiums.
• We have award-winning anti-fraud mechanisms. Insurers can trust that Confused.com’s customers are who they say they are to reduce fraudulent claims. Fraudulent customers cost insurers a huge amount of resources. But we help them side-step that burden—and prevent costs from being passed on to consumers – by ensuring insurers can trust the customers we give them.

Improving access to insurance is good for everyone

Improving access to insurance ought to be a priority for the insurance industry.

It's beneficial for consumers as it means they're less likely to be at financial risk. For insurers, more accessible insurance widens the potential customer base. And it's good for price comparison websites like us, as it means people continue to shop around for insurance products.

Stay in the loop about how the industry is adapting and learn more about what we do at Confused.com.