What right do we have to insurance? A recent report from the UK’s Financial Inclusion Commission concluded that: “every adult should have access to the right insurance for his or her needs, at a fair price.” There’s a lot to be said for insurance being available according to need, but is it realistic? Can the UK insurance market deliver it?
It’s realistic to the extent that it’s been done before. National Insurance in the UK provides mainly pension benefits according to need, administered by central government. As most people grow old, so there’s a near universal need for a pension. And in the UK, most people become ill at some point in time and the National Health Service (free at the point of need) provides cover for those health needs. All this is paid for through a series of taxes.
So in the UK, the question is less about whether ‘delivery according to need’ is realistic or not (as we’re done it before) and more about ‘what insurance is it that we need?’.
Motor and contents insurance
That’s a tricky question. Take motor insurance for example. In the UK, it’s compulsory to have it, but not compulsory for the insurance market to provide it. The market does however step up to the mark and provide cover to virtually everyone with a licence, even if at an occasional jaw dropping premium. So that’s one need that is being met through the private sector.
What about covers that may be needed, but which aren’t compulsory. One finding in the Commission’s report stood out for me:
“Households without home contents insurance are three times more likely to be burgled than households with insurance, but have the least disposable income to replace even low cost items.”
That points to quite a big need for such cover, so why isn’t it being bought? Is it because the marketing never seems aimed at ‘people like us’? Is the product still too complex to understand? Or still too expensive to buy? If you’re not familiar with the internet and aggregators, is getting hold of a policy just too confusing? And then there’s that trust question.
The need for contents insurance is much greater if your exposure to loss is much higher, but then, some insurance people would point out that insurance then becomes irrelevant: if your expectation of loss is so much higher, why swap money with an insurer? Yet my expectation of submitting a motor claim or two over my driving life is pretty high too – what’s unknown is when they’ll occur and whether they’ll turn out to be a dent or a wipe-out. Surely it seems only fair that the market should bring all its knowledge and experience to solving such basic ‘home grown needs’, as it does with all those exotic space and shipping risks? Is it fair that such needs should be left unfulfilled?
The chief executive of the UK’s Financial Conduct Authority said back in October 2013 that fairness would be the dominant theme of 21st
century financial services, for both the regulator and for business. So how does this thing called fairness help us work out ‘what insurance is it we need?’
I’ll develop this in two further posts, the next one out next week.