Mike Farrell outlines the ‘seismic shift' in attitudes towards renting and explains how insurers should evolve to meet renters' needs
Everyone knows an Englishman’s home is his castle, but with property price increases outstripping real wage growth, the dream of home ownership remains just that for many.
As a result, the number of people living in rented accommodation has increased by two-thirds over the past decade. Industry figures show that almost a fifth of the 22 million households in England are living in private rental properties. The number of private renters is now at its highest proportion since records began.
However, our research has also shown that there has been a seismic shift in attitudes towards renting. Huge numbers of people are now freely choosing tenancy, and many actually prefer it to ownership.
Whereas nearly all of the previous generation of Brits (those now aged between 55 and 75) saw owning their own property as the ‘ultimate goal’, just a third of people under 35 now feel the same way. Half of all renters no longer see bricks and mortar as a sign of success, and almost three-quarters (70%) say the notion that it’s in some way shameful to never own a property is completely out of date.
People’s reasons for renting vary somewhat: one in six Brits rent because they don’t want to be tied down to any one place. More than one in ten (13%) would rather get a feel for an area and their neighbours before making a decision, while a tenth simply have no inclination to buy. A number of renters would rather spend their money on other things than on property.
Naturally, there are many young people who still want and hope to own property in the future, but they are realistic about when this will happen. While the previous generation expected to be homeowners by the age of 25, young people today can’t see themselves putting down a deposit until they are at least 36.
As a result, the face of Britain’s renters is changing. Renting is no longer the preserve of university students and fresh faced graduates in their first job – there has been in a rise in the number of professionals with families living in rented accommodation.
Whatever the reason, more and more people are renting and it is clear that as the demand for rental properties rises, so does the cost of renting. On average, renters now pay £947 per month, or £11,364 per annum. This equates to 43% of the average UK salary of £26,500. The research shows that renters pay 58% more to keep a roof over their head than homeowners – who pay an average of £600 per month in mortgage repayments, or £7,200 per annum.
Weathering a financial storm
The amount households pay is enough to sink both stomachs and bank balances. Yet a quarter of people surveyed said they had no financial backup plan, such as income protection, in place and that they didn’t know what they would do if they suddenly lost their income.
Although a third said they would rely on their savings, it is clear that among this group many have an insufficient amount put aside to weather a financial storm, as one in four households admit their money would only last a month.
Given that statutory sick pay equates to just £87.55 per week, someone earning the average UK wage would see their income drop by 78% if they had only that to fall back on. Although no one wants to think about getting ill, unfortunately there will be some who are unable to work due to illness or accident and will need to be off for a significant length of time.
Our figures show that the optimism bias is alive and well, even among those who fall ill – with more than half of those who have been on long-term sick leave underestimating just how long they would need to recover. Indeed, almost half (44%) of those surveyed who had been off sick admitted they had returned to work before they were ready due to concern about the financial impact of taking any more time off.
Historically, buying a property has been one of the key triggers for someone to take out an insurance policy, in order to guarantee that mortgage repayments can be met. However, while it’s all well and good to reference and learn from history, it can’t be where the industry’s mindset resides.
Need for evolution
In order to grow the market and deliver protection to all who would benefit, we need our thinking to evolve. We need to adapt our way of operating in response to changing social trends and acknowledge the fact that the number of people living in rented accommodation looks set to grow.
Regardless of whether someone owns or rents the home in which they live, it is important they have a contingency plan in place that would enable them to carry
on living there if they were to lose their income suddenly.
In fact, given that renters are paying more than homeowners on average and landlords are less likely than banks to offer a stay of execution if someone falls into arrears, one could argue renters are the group with the most urgent need for
But when someone starts a new tenancy, there isn’t a prompt that makes them aware of the risks they face or the financial solutions that can best help mitigate them. After all, a credit check may confirm that someone can afford their rent at that moment in time, but it doesn’t guarantee long-term affordability if the unexpected happens.
Widening the conversation
Across the board, insurance is a grudge purchase. But awareness of protection is far lower than that of general insurance products such as home insurance. Using house purchases as a way to start the conversation about the value of protection is no bad thing, but it shouldn’t be the only catalyst for that discussion, as it will mean that many people are excluded from the protection dialogue.
When I speak to outsiders about our industry, what I find interesting is the sheer number of people who are quick to tell me that they don’t need protection “because
it’s just me” or that they don’t have anything to protect, as they are renters and don’t have a family.
This suggests to me that we need to get better at demonstrating and explaining the benefits of the protection policies on the market.
Regardless of their marital status or living arrangements, it is their salary that affords most working adults in the UK their lifestyle – and most would see their way of life severely hampered if they suddenly lost it. Yet many believe that they “don’t have anything to protect”, as their income isn’t a physical, tangible asset. As a result, people will rush to insure their mobile phone but not the income that allows them to pay their phone bill each month.
Life insurance sales far surpass those of income protection and critical illness, yet people are more likely to be off work for two months or more than they are to die before they reach retirement.
What do these sales figures tell us? Does this mean we live in an altruistic society where our only financial concern is for those we leave behind? It’s a nice theory but, in reality, it is more likely to be the fact that life cover is cheaper and that its benefits are easier to discuss and demonstrate, making it simpler to engage clients and therefore easier to sell.
To help to redress the protection sales imbalance, LV= created a risk/reality calculator to help advisers move the conversation away from price to one of real customer need. The Shortfall Calculator helps advisers highlight to their clients the impact a sudden drop in income would have on their finances.
However, as an industry we still need to seek ways to widen the conversation around protection to include and engage all those for whom it would add real value. After all, it is income protection that provides the financial shelter that ensures someone’s house remains their home.
Mike Farrell is head of protection sales at LV=
Zurich has launched a 'selfie' app called FaceQuote which estimates how much life cover someone might need.
The official supplement of this year's COVER Excellence Awards is available to read now as an eBook.
Child cover within critical illness plans has assumed a far greater importance in recent years, writes CIExpert's Alan Lakey.
Holloway Friendly has widened its new online underwriting process allowing protection advisers to write both full and short term income protection business in minutes.