The Victorian bushfire season has already begun, with homes destroyed in Lancefield in October, extreme fire conditions declared across Victoria this week, and warnings for a dangerous season ahead.
Insurance is a vital component in both protecting assets and improving resilience. It is an essential product for ensuring that everybody, including people on low incomes, are able to recover from shocks and are resilient in the event of losses. However we know that access and uptake of insurance is low among people on low incomes, and a significant contributing factor in financial exclusion. People on low incomes, including the working poor, beneficiaries, refugees, renters, young adults and pensioners, have the fewest resources to dedicate to recovery after a loss, but are least able to afford the protection and security provided by insurance in the first place.
A 2013 report published by Good Shepherd Microfinance, Covering the essentials, stated that with one in six Australian adults living below the poverty line, 17.7 per cent of the population are fully or partially excluded from financial services. The report stated:
Climate change and increasing incidence of extreme weather are a concern for many reasons, but the two most salient for Good Shepherd Microfinance are increasing exposure to risk, and the potential for reduced affordability for insurance generally or for specific perils. For example, it was submitted that some 500,000 people in Victoria live in communities with highly elevated exposure to grassfire or bushfire, and this may well increase. Similarly, recent pressures on affordability and availability in high flood risk areas may well be accentuated, and/or spread to other risks. Should these scenarios be realised, not only is it expected that those who are already excluded will find insurance less accessible, but many who are currently insured will become excluded. This would place further pressure on recovery efforts after catastrophic events, accentuating issues identified in ASIC Report 54 and the Victorian Bushfires Royal Commission. This should be a concern to governments at all levels, as well as communities and insurers.
The Brotherhood of St Laurence, in its Submission to the Natural Disaster Insurance Review, stated that while people on low incomes are aware of the benefits of purchasing insurance they are unable to access appropriate insurance products owing to a range of barriers, most significantly affordability. While people on low-incomes are aware of insurance and the role it plays in protecting assets, Brotherhood of St Laurence research showed that:
- only 45% held home contents insurance, well under the commonly referenced national average of 77%
- 16% reported owning at least one vehicle but not holding third party or comprehensive vehicle insurance
- 76% held at least one insurance product
- 14% had never held any insurance.
People on low incomes also generally desire higher insurance cover than they presently hold:
- 68% of respondents desired higher insurance cover
- 34% desired higher home contents cover
- 9% desired higher home building cover
- 20% desired greater insurance cover on their vehicles.
Similar findings from a new University of Tasmania study indicate that 13 per cent of people surveyed are without insurance cover for their assets, 9 per cent of home owners are without house insurance and 41 per cent of tenants do not have contents insurance. The authors of the study state that for some people the purchase of adequate insurance cover is simply not an option. Bushfire-prone urban fringes are increasingly populated by low income earners and households where English may be the second or third language. The affordability and perhaps cultural understanding of insurance stand as obstacles to obtaining adequate coverage. They state:
…as the fire season kicks off, it’s not only about individual responsibility for adequate insurance coverage. Affordability is clearly important for those who are most vulnerable in the face of property loss. Insurers also need to bring more transparency to premium pricing. Governments have a vital role to play here, too. By providing greater accountability for payout decision-making, they could increase consumer confidence that money spent on insurance will actually deliver dividends. Only through the development of robust prevention and recovery strategies can communities and households be adequately safeguarded against future disasters.
There are a range of barriers that people on low incomes face in accessing adequate insurance. For example the Brotherhood of St Laurence found that of people on low incomes:
- 66% stated that insurance being too expensive or unaffordable
- Only 10% reported having adequate cover
- Only 1% didn’t want any insurance.
- Only 1.5% viewed insurance as a waste of money.
Good Shepherd Microfinance similarly found that affordability and limited availability of products fitting their needs are major barriers for people on low incomes with regard to accessing insurance and recommended a range of options including fortnightly payments, community rated policies, group insurance, community sector distribution, not means testing policies, and online sales.
The authors of the University of Tasmania study state that house and contents insurance works best as one aspect of an integrated disaster preparedness and recovery plan. They state:
With some governments leaning towards the privatisation of risk, insurance can appear as the disaster management mechanism of choice. Yet re-building a house (if one has adequate insurance cover) does not, on its own, re-build lives and communities. Insurance can help in the aftermath of a disaster only if it is coupled with collective clean-ups, infrastructure repair, government assistance, and community outreach.
VCOSS works to provide the community sector with information about emergency management, and to inform state government policy and program development for future emergency management. In particular, VCOSS aims to complement existing emergency management policy evaluation with perspectives from the community sector and disadvantaged and vulnerable people, by documenting experiences that will inform and improve approaches and processes.