Insurance is a pillar of financial inclusion, providing protection from unexpected economic shocks. However, previous research indicates low-income households are under-insured. The research reported here explores how low-income households value insurance and make decisions regarding coverage. An invitation was extended to people, both insured and uninsured, who had taken out a No Interest Loan (NILS) from a Good Money store. A mixed-methods approach provided both qualitative and quantitative responses to an online survey (N=199), and telephone interviews conducted with approximately half of the respondents (n = 98).

The quantitative responses indicated that car insurance was the policy type most likely to be held, at 55 per cent, with the majority of people with car insurance holding a comprehensive policy (84 per cent). House and/or contents insurance was the second most popular policy held by the sample, at 29 per cent; the majority (74 per cent) had only contents insurance because they did not own their home. Those with car or house/ contents insurance found value in protection from unforeseen accidents or incidents, and the replacement of valuable assets and items. Both those with and without insurance said these policies would be more attractive if contracts were easier to understand and compare, if there were incentives for years without claims, and if policies were more affordable.

The survey also allowed people to respond to other policy types, including funeral policies, the NDIS, life insurance, private health insurance, pet insurance, unemployment insurance and private disability insurance. Funeral insurance was the most-held policy type in this group, at 15 per cent, and unemployment and private disability insurance were the least-held, at 4 per cent each. People also indicated whether they considered the various policies of value despite not owning a policy themselves; life, private health, and funeral policies were the most highly valued with between 22 – 24 per cent of respondents placing a high value on these insurance offerings. Of those policies that were not owned and also were not perceived as valuable, private disability, pet and unemployment insurance were rated highest, at between 52 – 55 per cent. Finally, a response of not knowing much about each insurance type but wanting more information indicated that people were most curious about private disability insurance (14 per cent), and least curious about pet insurance (8 per cent), but these numbers were low.

Almost half (98) of the survey respondents were also interviewed over the telephone. These responses were categorised into those who did and did not have insurance, and those who placed a high or low value on insurance, creating four categories in total that guided the analysis; these groups were labelled as priority insurers (insured + high value), opportunistic insurers (insured + low value), those who felt left out (uninsured +high value), and those who were taking chances (uninsured + low value). By conducting an analysis of words associated with insurance,  similarities and differences across the four categories were identified. Six key themes that informed respondents' decision-making processes were identified. These were peace of mind/enforced; cost; experiences; complexity; tailored policies; and waste of money. There were differences across these themes for priority insurers, opportunistic insurers, those who felt left out and those who were taking chances. In sum, those who held a policy and/or valued insurance were more likely to see insurance as a positive contributor to their wellbeing, removing worry about unforeseen events and providing 'peace of mind'; this view was supported by stories of positive experiences. For those without insurance and/or for who did not value it, there was a more negative assessment of insurance and insurance companies, which was reinforced by experiences that confirmed their view that insurance was not worth the cost. Both groups agreed, however, that insurance policies were too complex, that it would be helpful to have more personalised coverage, and that cost was a primary barrier for low-income households.

Key findings:

• While the majority of responders who owned a car also had car insurance, some were not covered due to the cost or perceptions that ‘good drivers’ did not need insurance.
• Contents insurance was most often declined due to rental status, a lack of perceived value of items, lack of coverage for portable devices, and/or the expense.
• Of secondary policy types, life, private health and funeral policies were rated to be of greatest value, but financially out of reach for many respondents.
• While responders were categorised as priority insurers, opportunistic insurers, left out or taking chances, individual differences such as age, prior insurance experiences and financial stress means insurance decisions and priorities likely change across time.
• Priority insurers invoked ‘peace of mind’ repeatedly to explain the benefits of being insured, in stark contrast to the rest of the sample.
• Cost is a major barrier to low-income households when it comes to insurance, with other expenses often prioritised.
• Prior experiences with insurance can serve as a touchstone event, colouring individual attitudes towards insurance for years. They can also serve to justify insurance decisions.
• The complexity of policies, the claims process, and comparing options is a major issue for low-income households and vulnerable populations.
• Many low-income households would prefer more flexibility to tailor policies to need and also to reduce cost.
• Those with insurance often complained that with no claims there was no benefit to having a policy, while those without insurance were more likely to see insurance companies as unreliable.
• The decision to insure in low-income households involves a series of financial trade-offs, with choices to insure reflecting lifestyle priorities which often change across the life course.

Based on the key findings from this research, the following recommendations are made. These recommendations are designed to help insurance better meet the needs of low-income households. 

1. Strive to make policies and coverage easily understandable, providing the level of detail needed in the policies to ensure people understand their rights.

2. Some insurance policies and their benefits may not be well understood by low-income households, particularly contents insurance and life insurance. It may be beneficial to provide more information on these policies tailored to low-income householders and their needs.

3. Addressing the issue of cost is critical for low-income households. This could be done through:

• The majority of people in this research are reliant on Centrelink payments as their primary form of income. Insurance companies could therefore do more to advocate for an increase in payments and proper indexing to keep people out of poverty, and allow them to afford adequate insurance coverage.
• Insurance companies could also work closely with the government to make insurance affordable for low-income households. With the expected increase in natural disasters as well as the economic uncertainty of a post-COVID19 world it is advisable that the government consider how to provide more protection for low-income families.
• Expanding the Essentials by AAI model and/or types of insurance offered.
• Providing more flexibility in coverage so that individuals can pay only for the coverage most important to them.
• Providing discounts for automatic payments regardless of how often they happen (for example, fortnightly).

4. The stories that individuals told about insurance, including stories about positive or negative experiences with customer service, indicates that ensuring a caring and supportive customer experience is central to how low-income households value insurance.

5. Consider offering a reward program that provides a financial incentive or other form of benefit following an extended period of time with no claims.