A three-pronged approach to the rental protection gap

Paul Foody, chief operating officer at Inchora believes that we need to think carefully about the protection journey that tenants go on.

Speaking in Cover Magazine, Foody delved into a three-pronged approach to how tenants can be introduced to life cover.

‘Generation rent’ has become somewhat of a buzz phrase in recent years, and rightly so, with one in five UK households living in the private rental sector today, the days of young homeownership may be behind us, with tenant-life becoming the new norm. So, in an industry (life insurance) that has traditionally been driven by home purchases and mortgage conversations, how can we change our approach to products, marketing and distribution to tap into this new, and growing, market?

And not only is the rental market growing, it’s also changing. Twenty years ago, young people would be able to buy their first home in their 20s, perhaps even earlier, having only spent a few years in rental accommodation. Nowadays, people are living well into their 30s, 40s and beyond, in rental properties. Interestingly, since 1995, the proportion of 16-24 year olds renting in the private sector has reduced by around 40%, yet, over that same period of time, the proportion of 35-44 year olds renting actually increased by the same amount. The driver behind this? The approximate 300% increase in house prices over the last 20 years has undoubtedly had a part to play. This upward price trend has encouraged younger people, looking to save deposits, to stay at home with their parents for longer, and has made it harder for those already renting to step onto the housing ladder.

People are staying in rental accommodation for longer, so understandably we are seeing more families in this space. These changing demographics are driving a real need for protection, yet Sainsbury’s Bank research has shown that only a quarter of renters have life or critical illness insurance, compared to almost half of homeowners.

Distribution challenges

We heard from a number of industry experts during the ‘Protecting the rental market’ panel discussion at the COVER Protection and Health Summit earlier this month, and I believe we are starting to take really positive steps as an industry in designing products and shifting marketing messages to be better suited to tenants. But for me, one large part of the puzzle remains unsolved; how will we distribute these new products, particularly given that the rental sector is not one that financial advisers have traditionally accessed?

During the panel discussion it was raised that letting agents have a role here. I agree, but I do think that as an industry we need to think carefully about the protection journey that tenants go on. How do we equip letting agents with the right knowledge and skills to be able to talk about a brand-new protection product suite, and also provide them with an adequate infrastructure to signpost tenants on? Because from a regulatory perspective, it’s essential that conversations with an unauthorised letting agent do not stray into the realms of advice.

The protection objections in the rental space aren’t dissimilar from those in the mortgage world. The common hurdles being around cost, the lower perceived risk of illness or death and a lack of awareness and understanding of the products. Many mortgage advisers are well-equipped to talk about life, critical illness or income protection insurance with clients, made easier because buying a home is the number one trigger point to take out protection. But what about renters? The lack of an obvious trigger point, a desire to save rather than buy insurance, and a potentially lower risk awareness, make selling the concept of protection to a tenant quite difficult, even more so for a letting agent who has little experience in the protection world.

The role of a rental intermediary

I believe there is a need for an intermediary, an authorised firm that sits between the letting agents and the product providers. A firm which understands the protection products, understands tenants’ needs and can advise on the best solution, with a view across the whole market.

Through our Tenant Shop business, authorised advisers speak with roughly 100,000 tenants each year, helping to get them set up with energy, media and protection when they move into a new property. The protection forms part of a suite of rental products, making the conversation that bit easier to initiate.

Tenant Fees Act

Once the tenant journey has been mapped out, with signposting to a suitable intermediary or provider, the task then turns to encouraging letting agents to initiate a high-level protection conversation with their rental customers. This is, in fact, a conversation that I envisage happening more often given the introduction of the tenant fee ban legislation.

The new Tenant Fees Act came into force in June 2019, banning most letting fees and capping tenancy deposits in the private rental sector. Great news for tenants who now face fairer charges, but the change will undoubtedly have hit the letting agents’ financials. By introducing life, critical illness and income protection insurance to tenants, and subsequently passing them to a suitable intermediary or provider, letting agents will not only be helping to protect more tenants, but will also potentially be accessing a new revenue stream.

In summary, I think we need to do three things to bridge the rental protection gap. Firstly, we should continue to design protection products and marketing that are aligned to renters’ needs. Secondly, we need to educate and support letting agents so that they feel equipped to introduce the concept of protection to their customers. And thirdly, we have to develop an infrastructure which allows the passing of tenants to an authorised intermediary, or directly to a provider, which has the required knowledge, skills and experience in the rental sector.