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How can the home insurance industry better serve renters?

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For many Brits, renting is a flexible, practical choice that suits their lifestyle. For others, it's the only option as the cost of living increases and owning your own home gets harder.

Yet despite renters making up 36% of the housing market and becoming a growing market, over 2 million renters don't have renters insurance. Clearly, there's a significant opportunity for home insurers.

So, what can insurers and price comparison websites (PCWs) do to better serve the rental market? Read on to find out.

It's not surprising that insurance companies prefer homeowners as policy owners. People who own their homes are likely to stay on for many years.

And in 2023, people are moving house much less than they used to, making homeowners an even more stable customer. A 1988 study found that the average Brit relocated every 8.63 years. In contrast, a 2017 Zoopla study revealed that the time frame has extended to 23 years.

These long-term customers may be a safer bet than a renter who might only stay for a year or less before moving property. This increases the risk that they cancel their home insurance policy.

For this reason, home insurers have historically overlooked renters.

But now, with more people renting homes because of soaring house prices and changing lifestyle preferences, there's an opportunity for insurance companies to step in.

Challenger brands, such as Lemonade and Urban Jungle, are crafting flexible plans tailored specifically to the needs of renters, not homeowners. These plans allow customers to renew monthly, adjust coverage, and update address details effortlessly as their circumstances change.

The UK rental market is growing quickly, with over 8.5 million households renting, and a near-even split between private and social renting. Of course, this often isn't by choice. The recent surge in interest rates, without a dip in house prices, has made it significantly harder to get on the housing market than a few years ago.

An analysis of mortgage approvals from January 2022 to January 2023 shows a significant decline in approvals. At the start of 2022, mortgage approvals peaked at 73,264. But by January 2023 when the Bank of England increased the base rate to 3.5% there were only 39,000 approvals.

Even without the cost of living crisis pricing out potential buyers, societal shifts are making renting a more attractive option for many people. Modern family dynamics are different from those seen 20 or 30 years ago. We've seen a surge in single-person households and a growing number of people prioritising flexibility over ownership. In 2022, 8.3 million people lived alone, making up 13% of the household population and forming 30% of all households.

Standard contents insurance policies aren't designed for renters. These policies come with 12-month terms and high cancellation fees, and don't work for those who move around often.

So, we have an insurance landscape where:

  • Major insurers design products for homeowners, not renters
  • Buying a house is unfeasible for many, due to high interest rates
  • More people are living alone and prioritising flexibility

It's clear there's an opportunity for home insurers to serve the rental market. Insurers have huge potential to tap into this under-served and unengaged market and provide products suitable for the millions of Brits who rent.

From customer feedback, we've found that there are 2 main reasons renters don't get insurance:

  • The cost
  • They don't think they need it

Here's what insurers can do to manage the price:

Provide more flexibility in term length instead of just offering 12-month policies

Many renters don't want to lock themselves into a 1-year insurance policy as rental agreements are often under 12 months. They might be looking for a new job and open to relocating for the best opportunity. The prospect of steep cancellation fees can discourage them from signing up for rental insurance in the first place.

To win over more renters, insurers could offer policies that better match the fluidity of modern living. This could mean policies that accommodate address changes without amendment or cancellation fees and allow the renter to increase and decrease their coverage as their needs change. Or policies that can be paid monthly rather than for an entire year.

This way, renters can enjoy peace of mind without feeling tied down, and insurers can provide a product that better meets the needs of their customers.

Offer more customisable options for contents cover

Renters are often on a tight budget, particularly students and recent graduates. Insurers could introduce more customisable coverage options to cater to their needs.

For example, renters could choose selective cover on essential items like laptops, bicycles, or even a specific amount of work clothing. By covering only the items they want to cover, renters could significantly reduce their costs, making insurance more accessible.

Gather more information from renters to more accurately determine risk

A more detailed risk assessment could pave the way for fairer policy pricing. For example, a significant risk for renters is burglary. People are more than twice as likely to be a victim of burglary if they rent from a council or housing association than if they're a homeowner.

Despite this being a considerable risk, insurers might not fully consider existing security features when evaluating risk.

For instance, most insurers don't consider a doorbell camera in the evaluation, even though visible security systems can reduce the chance of burglary by 53%. This oversight prevents the insurer from getting a precise picture of the risk and keeps the consumer from benefitting from a reduced price.

Asking the customer for these details is a win-win situation. Insurers can better assess risk, and renters have a way to reduce their costs.

The other reason renters often don't get insurance is because they don't know it exists or don't believe they need it.

Here's what insurers can do to better demonstrate the value of insurance:

Include benefits explicitly designed for renters

Insurers can develop packages specifically designed for renters, including features such as tenant liability. This would protect renters in potential legal disputes with landlords. They could also offer accidental damage protection to provide a safety net against unforeseen incidents.

By including these benefits, insurers can offer a much more attractive product than what's usually offered to renters - contents insurance. This would improve the perceived value of home insurance, and help convince more renters that home insurance is worth their money.

Better educate renters on the benefits of insurance

Many renters don't think where they live has enough value to warrant rental insurance. However, using data from Confused.com customers, we found that the average value of a home's contents is £51,646. Even someone who is just renting out a room has items like clothes, electronics and jewellery that can be costly to replace.

A big part of improving the popularity of renter's insurance is educating renters that they're probably underestimating how much their possessions are worth.

To get the message across, insurers can use social media to target renters, who are usually younger than homeowners and more likely to be on social media.

For example, in these campaigns, insurers can better appeal to the budget-conscious renter by showing how affordable contents insurance can be. For instance, saying "£10 a month" instead of "£120 a year", or asking renters to fill in a calculator so they can estimate how much their possessions are worth.

There's a big opportunity for insurers to better serve renters. At Confused.com, our ongoing mission is to help every UK household find home insurance that matches their individual needs perfectly. That's whether they own their house outright, have a mortgage, or rent.

To do this, we must constantly develop our products to remain customer-centric.

Here are 3 ways we're offering more value to renters:

We've done some deep research into renters' needs

We've been investing in comprehensive research to help identify the ideal insurance products specifically designed for renters, stepping beyond the usual scope of contents insurance. We've been rethinking the customer journey and trying to understand where rental insurance can fit in.

We put challenger brands on our panel

The insurance industry has historically overlooked the rental market. But now, innovative new challenger brands are emerging, focusing specifically on renters' needs.

To ensure our customers can find the perfect home insurance policy, we're continuously adding these customer-centric insurtech companies to our panel.

We're working on offering comparisons for renters insurance

Challenger brands like Lemonade make a name for themselves by providing an insurance product designed solely for renters. At the minute, PCWs typically compare home insurance products, such as buildings and contents cover. But as more products designed for renters come to the market, Confused.com will aim to offer direct comparisons for these new renters insurance products.

Creating better insurance products that serve renters is in everyone's best interest. It means a better insurance experience for the 36% of Brits who rent and an increase in customers for insurers and PCWs.

Insurance isn't about sticking to the old ways. It's time to create flexible, fluid, and affordable solutions for renters.

If you want to learn more about Confused.com and our history as a consumer champion, read about our journey.

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