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2. THE PROVISION OF HOME CONTENTS INSURANCE FOR TENANTS IN SCOTLAND

This chapter provides an analysis of the level of take up of home contents insurance amongst social rented sector tenants in Scotland drawing on information from a survey of local authorities and the SFHA carried out by the Scottish Executive and the Scottish Household Survey. It then outlines the main features of the two most common models of home contents insurance schemes provided or promoted by social rented sector landlords - local authority with-rent schemes and the arms length scheme (Diamond Insurance Scheme) promoted by SFHA through its members - and a third 'opt-out scheme, operated by a housing association for tenants in sheltered housing.

2.1 The level of take up of home contents insurance amongst social rented sector tenants in Scotland

Following on from the 2003 Partnership Agreement to "support home insurance schemes tied to rents paid to landlords in the social rented sector" ¹⁰ the Scottish Executive invested £500,000 in 2003-04 to encourage the increase in take up of home contents insurance amongst social rented tenants.

The £400,000 that was provided to local authorities and the SFHA was used in a variety of ways, including:

• Distribution of national and local publicity material
• Advertising campaigns in the local press and radio
• Awareness training for frontline staff
• Promotional prize draws
• Promotional events.

The Scottish Executive carried out a Survey of Home Contents Insurance in the Social Rented Sector in 2004/ 05 ¹¹ to assess the increase in take up of local authority home contents insurance schemes and the SFHA's scheme. This showed:

• twenty seven local authorities operated a home contents insurance scheme tied to rent
• one stock transfer organisation (Dumfries and Galloway Housing Partnership) operated a scheme for new tenants, and those who transferred from the local authority ¹²
• four local authorities - Angus Council, Eilean Siar, Orkney and Shetlands Islands Councils - did not operate a scheme, although they advised their tenants to take out home contents insurance provided on the open market
• in 2004 around 66,000 households had a home contents insurance policy provided through their local authority landlord - c. 12% of local authority tenants
• variations in take up of local authority operated home contents insurance schemes varied from as low as under 5% in four local authorities to as high as over 20% in five areas.
• at September 2004, 95% of SFHA member housing associations promoted the SFHA Diamond Insurance Scheme to their tenants ¹³ and 8,799 housing association tenants (8.7%) had home contents insurance through this scheme.

The survey showed that where comparative figures were available for levels of take up of home contents insurance before and after the promotional activity the take up of insurance amongst local authority tenants had increased by less than 10%. Overall, the level of take up of home contents insurance amongst local authority and housing association tenants increased from c. 11% to c. 12%.

In summary, following the promotional activity in 2003-04 around 75,000 social rented sector tenants out of a total of c. 615,000 tenants ¹⁴ have home contents insurance through a scheme provided or promoted by their landlord.

The Scottish Executive's survey did not attempt to assess the proportion of tenants who have taken out their own home contents insurance cover, independently from any scheme provided or promoted by their landlord.

The Scottish Household Survey asks tenants whether they have home contents insurance and does not distinguish between tenants who have taken out insurance cover through the scheme provided or promoted by their landlord or whether they have taken out a policy on the open market.

The latest Scottish Household Survey (2005) suggests that overall the level of take up of home contents insurance among social rented housing tenants decreased from 56.1% in 2003 to 54.6% in 2005. ¹⁵ Although, a local authority breakdown is available for only one year, and is therefore not directly comparable to the two years data for the Scottish wide figure, the local authority level figures suggest that take up of home contents insurance amongst social rented sector tenants varied from just over 70% (in four local authority areas) to only 42%.

They also suggest that there is little correlation between the level of take up of the local authority operated scheme and the overall level of take up amongst social rented sector tenants. For example, Angus, the only non-islands council not to offer tenants a home contents insurance scheme, is shown in the Scottish Household Survey as having 67.7% of social rented sector tenants with home contents insurance; whereas Glasgow, where the local authority/ Glasgow Housing Association provide a low cost with rent scheme to tenants, only has 42% of social rented sector tenants have home contents insurance.

Since we know that around 12% of social rented sector tenants have home contents insurance provided through a local authority or the SFHA Diamond Insurance Scheme the Scottish Household Survey statistics suggest that around 42% of social rented sector tenants have taken out their own home contents insurance cover, independently from any scheme provided or promoted by their landlord.

The Scottish Executive's survey of local authorities and housing associations was carried out over two years ago and has not been repeated for this study. However, evidence from the organisations that took part in the stakeholder interviews for this study suggests that there has been little change in the position since the survey was carried out in 2004-05. For example, the proportion of tenants insured through their local authority increased slightly in East Lothian (from 11% to 12%) and Stirling (from 8.25% to 10%) and remained static in Aberdeenshire (c. 10%).

There has been a further c.10% increase in the number of Housing Association tenants in the SFHA Diamond Scheme to around 10,000, but this still represents less than 10% of Housing Association tenants (excluding Glasgow Housing Association ¹⁶).

2.2 Models of Insurance Provision for Social Rented Sector Tenants

There are two basic models of optional insurance provision operated or promoted by local authorities and housing associations:

• With-rent schemes operated by local authorities.
• Housing Associations principally promote the SFHA Diamond scheme which is an arms length or affinity scheme (see below); although some Housing Associations also offer tenants an alternative arms length scheme or operate their own with-rent schemes.

A small number of housing associations operate a third type of scheme for tenants in sheltered housing - an opt-out scheme - where the home contents insurance policy is automatically provided and the insurance premium is added to the service charge paid by the tenant unless the tenant chooses to opt-out.

Local authority with-rent schemes

The key features of the schemes offered by Scottish local authorities are as follows:

• Low cost premiums
• No excess payment on claims
• No minimum security requirements
• Flexibility in payment with the rent (weekly, fortnightly or monthly) or payment by Direct Debit or cash/ swipe card at Post Offices or retail outlets that operate PayPoint
• Most schemes provide the option of taking out cover for accidental damage
• Same level of premium throughout the authority ( i.e. no variation in premiums for different areas)

A desk based review of Home Contents Insurance schemes operated by Scottish local authorities conducted for this study shows that the level of cover provided and premiums paid by tenants are very similar across the schemes. Most provide a lower level of minimum cover (and premium) for people aged over 60; usually starting at £6,000. The minimum cover for people aged under 60 is either £9,000 or £10,000. Maximum levels of cover range from between £25,000 to £35,000.

Premium payments charged by the insurance provider are based on factors such as:

• The characteristic of the area
• Size of stock
• Overall claims experience in the area
• The market at the time that the scheme was tendered. For example, North Lanarkshire Council tendered it insurance scheme in 2007 and achieved substantial savings on the premium charged to tenants so that from 2 ^nd April 2007 the premium charged fell by around 20%.

Local authorities operating a with-rent scheme will be paid a commission by the insurance provider to cover costs incurred in administering the scheme (principally collecting premiums on behalf of the insurance company). The cost of this commission is subsumed within the premium paid by tenants.

The main potential problems raised by stakeholders and tenants with local authority with-rent schemes relates to tenants with rent arrears.

Local authority with-rent schemes do not accept applications from tenants who are in rent arrears. The impact of this restriction will vary according to the proportion of tenants who have some level of arrears. In 2005/06, c. 4.5% of local authority tenants in Scotland owed more than 13 weeks' rent at the year end. The areas with the highest proportions of tenants with this level of arrears were Inverclyde (9.6%) and Aberdeen City (9.2%). ¹⁷

Tenants who have taken out a with-rent insurance policy who then get into rent arrears may find their policy being cancelled. Local authorities will notify tenants with rent arrears of possible cancellation of their insurance policy and encourage them to address their arrears or pay the insurance cover separately. However, if the arrears are not reduced or the insurance premium paid separately the cover will be cancelled.

There are no national statistics showing the number of tenants who have had their home contents insurance cancelled due to falling into rent arrears. However, figures provided by two local authorities that took part in this study suggest that the figure could be between 5% and 10%. Aberdeenshire Council reported that in 2006/07 it cancelled 70 insurance policies (c. 5% of policies) because the tenant was in rent arrears. East Lothian Council insurance section receives around 60 notifications of rent arrears per year - c.7.5% of the c.800 tenants who have a council home contents insurance policy.

Another potential problem with local authority with-rent schemes is that the most financially excluded tenants - those who receive full Housing Benefit ( i.e. their rent is paid in full through Housing Benefit) - cannot take advantage of the with-rent aspect of the scheme. These tenants cannot take advantage of one of the main benefits of the scheme - payment of the premium along with the rent - but have to make separate weekly, fortnightly or monthly payments either by Direct Debit or in cash either at a local housing office or Post Office/ PayPoint shop. Although payment by cash means that no bank account is required, financially excluded tenants still need to budget for the regular payments.

The main features of local authority with-rent schemes as listed at the start of this section are aimed at encouraging take up of home content insurance amongst tenants. However, several of the common features of local authority schemes can deter some tenants. For example:

• The maximum level of cover - as low as £25,000 in some schemes - may not be high enough for some tenants
• Some schemes do not provide cover for personal possessions outwith the home or for high value goods.
• Some schemes do not provide cover for Accidental Damage.

The housing association arms length scheme

SFHA has been promoting an arms length home contents insurance scheme on behalf of its members since 1995. This scheme known as the Diamond Insurance Scheme was brokered and is administered on behalf of SFHA members by Jardine Lloyd Thomson. As well as brokering the scheme between SFHA and the insurance underwriter (currently Royal Sun Alliance) Jardine Lloyd Thomson also collects the premiums from tenants and administers any claims made by policy holders.

The main feature distinguishing the arms length scheme promoted by housing associations from the with-rent scheme operated by local authorities is that housing associations merely promote the scheme to their tenants they do not take any part in administering the scheme through collecting premiums or administering claims. Housing association tenants who take out insurance through the Diamond scheme pay their premiums to Jardine Lloyd Thomson and not to their landlord.

Several of the key features of the Diamond scheme are similar to those highlighted above for the local authority with-rent schemes:

• No excess payments on claims
• No minimum security requirements
• A lower level of minimum cover (£6,000) and premium is available for people aged over 60
• The minimum level of cover (except for people aged over 60) is £9,000 and the maximum amount covered is £30,000

However, there are several differences:

• Payment cannot be made with the rent although the monthly payment can be made either through a Direct Debit or by cash at Post Offices
• There are three area-based levels of premium based on claims experience and other factors that might affect the level of claims
• The scheme does not provide accidental damage cover.

Although 95% of SFHA's members and promote the Diamond Insurance Scheme to their tenants several SFHA members operate or promote other schemes, either alongside the Diamond Scheme or as an alternative.

For example, Home in Scotland, part of the Home Group of Housing Associations operating throughout the UK, has since December 2006 provided its tenants with the choice of either the Diamond Insurance scheme or the 'Simple' scheme operated by Home in Scotland. The Simple scheme is available to all Home Group subsidiaries in the UK and is operated through the Northern Housing Consortium (a consortium of 170 local authorities and Housing Associations in Northern England). It differs from the Diamond scheme in having slightly lower premiums, a higher maximum level of cover and including the option of taking out cover against Accidental Damage.

GHA and other Housing Associations established through wholesale local authority stock transfer operate home contents insurance schemes inherited from the local authrority rather than the SFHA's Diamond Scheme. ( See Appendix 2)

The opt-out scheme

This scheme differs from the with-rent and arms-length schemes outlined above in one significant way: tenants are automatically provided with, and charged for, the insurance policy when they take out their tenancy unless they choose to opt-out. That is, this is an 'opt out' scheme rather than an 'opt-in' scheme.

Hanover (Scotland) a Scottish housing association specialising in providing sheltered houses for the elderly has operated its own opt-out home contents insurance scheme for tenants in sheltered housing since 1995. The sheltered housing tenants pay a service charge on top of their rent and the insurance premium (£45 per year) ¹⁸ is included within that charge.

All tenants have the same level of cover - £10,000 household contents and £750 personal belongings. A top up rate is available for people who want higher level of cover and around 200 tenants take this option. The scheme does not cover against Accidental Damage.

Over 95% of Hanover (Scotland)'s 4,000 sheltered housing tenants have home contents insurance cover through their landlord. Only around 170 tenants have chosen to opt out of the scheme. Many of the tenants who have opted out have taken out their own insurance cover, usually providing a higher level of cover and other benefits such as cover against Accidental Damage.

The opt out scheme operated by Hanover (Scotland) has the benefit of forcing tenants to take a decision to opt out of taking the home contents insurance cover and the evidence suggests that only a small proportion of tenants will opt-out.

However, the opt-out scheme is only really available to Registered Social Landlords that provide some form of factoring service for which a service charge is made such as for sheltered housing. .

The other restriction with the opt out scheme is that in order to keep premium payments as low as possible to minimise the number of tenants who might opt out because of cost, the level of cover provided is at the lower end of what might be required by tenants. This may be suitable for most tenants in sheltered housing but might not suit all and would be less appropriate for other tenants ( e.g. families that tend to have more possessions such as electrical and electronic equipment).

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