How can advisers help to close protection gap for renters?

Individuals over the age of 55 now account for 16 per cent (576,0000) of privately rented households in England, up from 11 per cent in 2010 according to a study by Paragon Bank.

The increase has been attributed to more later-life divorces, poorer pensions and increases in life expectancy.

The pandemic has also caused many to suffer financial loss as people are faced with the difficult decision of being forced to choose between paying for food and bills or paying rent.

The industry’s ability to reach the renter community has always been a problem. Data suggests that the main trigger for people to discuss protection insurances is a significant life event; such as having a child or, most pertinently, buying a house.

Therefore, the renter community often gets widely ignored by the insurance sector. 

Matthew Chapman, commercial director at Plus Financial Group, says the advent of products specifically tailored to renters is encouraging. However, he says more work needs to be done to create awareness of the importance of protection to this financially vulnerable segment of the market. 

Chapman adds: “I have been suggesting that we look to signpost the need for lifestyle insurances, such as income protection, within the tenancy agreement given the benefit and financial security this could offer the tenant, the letting agent and the landlord alike. 

“More work needs to be done to engage letting agents and tenants to explore these types of financial resilience solutions.”

Income loss

Income protection cover is essential for renters, especially when taking into account the relatively low level of savings they have in place. 

David Mead, founder of Future Proof and joint head of protection at St. James's Place Protection Planning, says: “What happens if they become sick and need to take extended time off work? How long will their employment benefits help them to keep the wolf from the door? 

I have been suggesting that we look to signpost the need for lifestyle insurances, such as income protection, within the tenancy agreement given the benefit and financial security this could offer the tenant, the letting agent and the landlord alike.--Matthew Chapman

“If the events of the last 12 months have taught us anything, it’s that we are all a lot more vulnerable than we thought we were. Income protection will keep the cash flowing when the income stops.”

Ian McKenna, founder of FTRC and Protection Guru, agrees. He says: “The rental sector is an enormous opportunity for the income protection market, It can be argued that people in rented accommodation need cover even more than those who are in their own home.

“Most renters enter into a 12-month contract, but employers only have to provide statutory sick pay for 28 weeks and in reality, this will rarely be enough to cover rental costs as the average rental household spends 41 per cent of its income on rent.

“We would like to see more advisers building closer relationships to estate agents to bridge this gap. A tenant that has income protection in place must be far more desirable for all involved.

"As a landlord, would you really want to evict a tenant who could not afford to pay rent because they were too ill to work? From the estate agent's point of view it would reduce the number of tenants on the book that might [enter into arrears] and can help build a better relationship with those tenants.”

Education is key

There are clearly products out there to help renters, but what benefit are they if the people that need the cover are not buying them and how can advisers help to bridge this widening gap?

More work needs to be done to engage letting agents and tenants to explore these types of financial resilience solutions.--Mathew Chapman

Kathryn Knowles, managing director of Cura Financial Services, says education and engagement is key.

“A good start would be to engage with landlords and estate agents. Inform them of the benefits of protection, that if their tenant falls ill and has income protection, their rental fee is still likely to be paid,” she adds.

Paul Shearman, proposition director, at The Openwork Partnership, agrees that collaboration between advisers, estate agents, letting agents and landlords is critical to increase take-up insurance cover. 

And while there is still a long way to go, he has seen growing evidence that moves are being made on this front. 

He cites the creation of risk reports detailing the likelihood of being unable to pay rent or maintain living standards during future years as a result of sickness or accidents, and the increasing use of guaranteed insurability options (GIOs) within income protection policies to respond to renters needs for flexibility. 

He says these types of shift should increase advisers' effectiveness in engaging and positioning protection with renters moving forward.

Forming partnerships

>If the events of the last 12 months have taught us anything, it’s that we are all a lot more vulnerable than we thought we were. Income protection will keep the cash flowing when the income stops.--David Mead

Chapman says he has heard of many advisers partnering with letting agents to provide referral services that offer protection advice to tenant clients.

“This is a potential win-win for all involved,” he adds. “The letting agent has access to a new supplemental income stream; the adviser gains access to new potential customers with whom they can build long-term relationships.

"The tenant gains financial security and the ability to remain in the property in the event of incapacity, and the landlord gets assurances that the rent will be paid each month regardless of the tenant’s ability to work.”

A number of insurers have also built special services and products around the rental market, notably The Exeter and Legal and General.

Social media has also been highlighted as a useful tool to communicate the benefits of insurance cover to a wider base. But advisers also need to be careful with how they use it.

Knowles says: “Social media is a powerful tool, but it’s incredibly important that we do not bombard people. This last year especially, the amount of targeted social media that myself and others have received has been intense. 

“We need to have a balance of engaging rather than irritating people. This is hard to do, as all firms rightly want to promote what they are doing. But we are in a danger of overloading people, so instead of encouraging them to think about protection, they end up becoming desensitised to the message.”