Calls for NFPs to Help Uninsured Australia

Those who can’t afford insurance are being left without a “vital safety net”, according to a new report which claims the not-for-profit sector could help boost coverage for those on low incomes.

The new discussion paper from Brotherhood of St Laurence highlights the hardship of those who can’t afford insurance and explores the ways a not-for-profit insurance platform could provide low-cost coverage.

According to the report, Uninsured Australia: The Case for Not-for-profit Insurance, two-thirds of renters lack contents cover, with those least able to replace possessions or absorb a loss also the least likely to be insured.

Brotherhood of St Laurence manager financial inclusion Tony Robinson told Pro Bono News a higher rate of coverage among low income Australians would reduce hardship when assets were damaged or lost.  

“Any number of reports have shown that lower income Australians are far more likely not to have insurance for assets and therefore in the event that those assets are damaged or lost, they suffer serious consequences,” Robinson said.

“We know this is an ongoing problem. Over the last 10 or 15 years there have been any number of reports that have show it. And affordability comes up as the key element.

“But we are currently in a position in Australia where we are leaving it solely to for-profit insurers to do something about that and that gives rise to what I’ve called in the report, ‘the irreconcilable problem’. It is effectively the square peg, round hole problem.”

Robinson said most people who did not have insurance said it was because they could not afford it, with 69 per cent in one survey giving that as the main reason.

“In the paper we look at different types of insurance and household contents insurance illustrates the problem,” he said.

“More than half of adults on Newstart allowance and Parenting Payment don’t have contents insurance. 67 per cent of Australian renters have none, and 29 per cent of households in general don’t have it.

“Further, between 10 and 15 per cent of Australian drivers have no property damage coverage, and many low income drivers experience significant financial loss when sued.”

He said a dedicated not-for-profit insurance platform could provide a suitable means of maintaining lower priced products for those who needed them most.

“For-profit insurers are motivated to optimise and maximise a return to their shareholders and that impacts directly on their ability to make the products more affordable, so we are grappling with this irreconcilable problem and I think a fresh approach is required,” he said.

“Without the need to return shareholder dividends, not-for-profit insurance could deliver products at a lower price than a for-profit entity, particularly if reinsurance does not feature as an input cost.”

The paper highlighted some low cost coverage moves being undertaken in the sector such as including content insurance with rent schemes in the United Kingdom and initiatives by Australian not-for-profit provider Good Shepherd Microfinance to develop low cost products.

“There is some evidence from parts of the world where I think a different approach is more successful,” Robinson said.

“We have the example in the UK where housing authorities incorporated insurance into the rent.

“They tried two systems, one was an opt in and one was an opt out, and I think where they had an opt out the coverage rate was around 84 per cent or something. So they organised that… with an insurer and they got a stock standard policy, there was no intermediation, there was no sale technique or sales resources required by the insurer they just provided the coverage at a minimum price and the housing authority which had a relationship with the tenant, did the rest.

“So they cut out a lot of the middle part of the typical process and because the underwriter was providing a bulk policy they were able to keep the rate pretty low. I think they quoted the rate as being less than a pound per week.”

Robinson said Good Shepherd working with Suncorp was “the best of the local initiatives”.

“That has made a start but as I say in the report, whether that can withstand the inevitable price cycles that go on within the general insurance world remains to be seen,” he said.

“That product is expected to deliver returns like any other product that a general insurer offers. And as the report points out when insurers are hit with large numbers of claims they inevitably resort to raising premiums across the board for policies just to shore up their position.”

He said one of the barriers to adopting new models was thinking about insurance in the context of natural disasters.

“I’m not saying there is anything wrong with this approach but in Australia the focus is always upon natural disasters and the damage they do to buildings,” he said.

“We’ve just had another example of this last week with Cyclone Debbie, so the issue there is focused on building insurance. A similar issue arises where too many lower income Australians don’t have insurance or are grossly underinsured and they are complicated problems.

“They are also hugely expensive problems to fix because much as we would say… it is a good thing for all Australians to be insured, one you can’t make them and secondly in some areas that are flood prone, you can’t force an insurer to offer a policy, and where they do offer them of course based on data they will say the premium must be priced prohibitively.

“So that is an even bigger conundrum, and tackling that is difficult when you’ve got different responsibilities at state and federal level and there is a need to be investing large amounts in litigation.

“I will say however I think the insurance industry has come some way in the past few years and is now at least having the conversation or at least thinking about doing things a bit differently. The partnership with Good Shepherd is a really welcome development.

“So I’m optimistic about the future but I tend to think we get fixated, like I said quite rightly, about the big building insurance problems and the impact that cyclones and bushfires have and that probably distracts us from seeing other opportunities with what might be less complex challenges such as contents insurance.”

He said the aim of the paper was to “stimulate some discussion and look at fresh approaches to solving this problem”.

“If we simply rely on private, for-profit insurers to build and maintain at a higher level the rate of insurance amongst lower income Australians we are just going to disappoint ourselves, because it’s not going to happen,” he said.

“We need to find new ways of tackling the problem and I think we have to think about models other than what for-profit insurers would typically do.

“It doesn’t mean they shouldn’t be involved but I think we have to find other ways in which those who typically lack insurance can be encouraged to take it up as easily as possible.

“So insurance with rent I think is a really good idea, there may be other forms as well but that’s the one we’ve been focusing on more recently. And I think it is one that ultimately we would hope to persuade for-profit insurers to see the merit of working that way.”