Out of reach?

According to the Association of British Insurers, a quarter of UK homes do not have household contents cover and 1.25million motorists are uninsured. Similarly, a significant minority of people do not have banking facilities, still using cash for all their purchases.

Though the insurance industry may view the underprivileged as undesirable customers, many believe it has a moral duty to offer them cover. Ensuring everyone has insurance could also help the industry too. For example, if every driver was covered, the Motor Insurers' Bureau would no longer need to pay out for accidents caused by the uninsured.

The government is trying to encourage people to have private bank accounts.

From next year giro payments will be phased out, and funds such as housing benefit and income support will have to be paid into a bank account.

Banks are making themselves more customer friendly, with outlets in supermarkets and village stores, and the insurance industry is also trying to make itself more accessible to the financially disadvantaged.

Two years ago, the ABI came up with its Insurance with Rent initiative, which aims to provide tenants in social housing with household contents insurance that meets their needs and budgets. A number of local authorities now get tenants to pay for contents cover at the same time as rent. Tenants who insure and take a responsible attitude to their possessions are also more likely to care more for the properties they rent. And if they have a burglary can get their possessions replaced without falling into debt or running up rent arrears.

Local authority schemes represent a much-needed alternative to mainstream insurance, the cost of which may be unaffordable in high-risk areas. There is often a tendering process to appoint insurers and brokers, which ensures the local authority provides best value, and the cover is no-frills insurance, with low minimum sums insured, low deductible levels and no minimum security requirements.

According to the ABI, typical take-up rates on established schemes vary between 15% and 30% of those eligible. Around 5% of potential participants will join in the first year, with a further 2% recruited in each subsequent year.

It may seem strange that so many choose not to join but, as Henry Robson, member services director of the Scottish Federation of Housing Associations, explains, the financially excluded are wary of insurance. He says: "Historically, tenants in the public sector have not really understood the concept of insurance, or have thought that their rent somehow included insurance. So there has not been a great take-up of contents insurance."

This has had disastrous consequences. When bad weather has caused flooding, tenants have discovered, to their horror, that they were not insured, and looked to landlords, or the Scottish Executive to make good their losses. The Executive is, therefore, to mount a campaign across all types of social housing, to persuade tenants to take insurance.

Many brokers have launched low-cost contents schemes for local authorities and housing associations. One of the most successful is Thomas Winter, now part of Jardine Lloyd Thompson, which has run a scheme for the Scottish housing associations since 2001.

Regional managing director Michael Graham says: "We've had to tailor the scheme with a focus on catastrophe rather than bells and whistles. Fire, theft and burst pipes are covered but not accidental damage."

He adds: "A lot of people use third party administrators for schemes but we do it all in-house. We issue policies, handle claims, and run a tightly controlled administrative system. The schemes run well and we've had good support from insurers."

Royal & SunAlliance, Allianz Cornhill and Norwich Union are among the carriers used by Thomas Winter JLT. The brokerage tries not to take premiums for these schemes in cash but offers the option of a Post Office monthly giro swipe card. Housing associations do not favour combining the rent with insurance, however, preferring to keep premiums and rent separate.

The scheme allows for small sums insured - as low as £6000. Premiums are correspondingly low (from £3.50 a month) and numbers have so far reached 8000. "Several insurers have kicked at this ball," comments Robson, "but Thomas Winter JLT is the one that has taken off."

National broker Hill House Hammond finds that people from all walks of life visit its high-street branches. Spokesperson Alex Lovesey states: "We don't exclude people on the grounds that they don't have a bank account or a credit card. We're in the business of encouraging people to take out insurance - we don't cherry pick. Retired people in particular like a branch network where they can go and talk to the same person each time."

Fire alarm

HHH has been building up relations with fire brigades, both to help them reduce the number of fires and to emphasise the importance of having insurance.

Lovesey says: "It's a small expense compared with what you could lose - even the most modest households have items they cannot afford to replace. People tend to think that it can't happen to them, even though most fires are in social housing or multi-occupancy properties."

Another HHH initiative has been to encourage Pass Plus, a driving qualification for those who have recently passed their driving test. Pass Plus gives training in conditions that new drivers are unfamiliar with, such as driving in bad weather. It costs £130 but HHH gives a discount of up to 53% for those with the qualification. This could be extremely helpful for young drivers finding it difficult to afford motor insurance.

One of the most difficult groups of people to place is ex-convicts. Insurers are wary of those with a criminal record, particularly if it is for theft, deception or insurance fraud.

Norwich Union says it would probably not offer household cover to a new business customer if they had previously been involved in fraud, arson, burglary or drug dealing, for example. However, if the conviction is spent the customer does not need to declare it, in accordance with the Rehabilitation of Offenders Act.

Sussex broker Fairplay Insurance Services has a household policy for those with criminal convictions, underwritten at Lloyd's. Fairplay's managing director, Chris Jordan, observes: "Proposers who have acquired criminal convictions find it very difficult to obtain household insurance. Our insurance offers them a real chance to obtain traditional home insurance, even though they have erred in the past and have probably been declined cover many times."

Jordan feels his scheme allows people to be honest. He explains: "I'm sure a lot of ex-convicts deny they have been criminally charged in the past because they know they will be declined. This way they can get insurance that acknowledges their past and it won't be held against them in the event of a claim."

Alienating those with criminal convictions from mainstream insurance excludes them from one of the services essential for day-to-day living.

Jordan says: "It is beneficial if the insurance industry can help those people who have genuinely turned their back on crime. People who work and earn and buy houses are the backbone of this country and they need to be able to insure their possessions. I'm not pretending insurance is the most important thing in their lives but it is one of those essential props that most of us take for granted."

He continues: "If someone has been convicted and served a sentence we should offer them the chance of rehabilitation. Some won't take it but the vast majority will. They will probably value the chance of participating in mainstream financial services more than most."

Surprisingly, the traditional criminal classes are not principally responsible for defrauding insurers. Research by the ABI has shown that the typical insurance fraudster is male, married, in full-time employment, a homeowner, and has received higher education.

A number of brokers specialise in finding cover for convicted motorists, including Performance Direct, of Hornchurch, and Adrian Flux, of King's Lynn. Gerry Bucke, a director of Adrian Flux, comments: "Only a couple of insurers will do criminal convictions, it's really a Lloyd's market. Cases are very much underwritten on an individual basis and a lot depends on whether they are re-offenders or first time offenders."

Drink driving and causing death by dangerous driving make a case difficult to place but murderers and paedophiles are the hardest to find cover for.

Old people can also be subject to financial exclusion, through no fault of their own. Once drivers reach the age of 70, insurers do not want them as new customers. Similarly, they are not wanted for travel insurance.

Help the aged

However, there are many brokers that cater exclusively for the over-50s.

Retirement Insurance Advisory Service, of Dorset, a subsidiary of Fortis, is one. Saga's independent intermediary subsidiary is another. Saga Services markets motor, breakdown, private medical, first home, holiday home and pet insurance to the older generation. Age Concern Enterprises also promotes cover to the older generation. Its products have no upper-age limits and customers can pay in cash or by interest-free direct debit.

At one time, the financially underprivileged were catered for by home service insurers. However, regulation and high costs of servicing have all but abolished them. The Pearl, the Prudential and others may not have provided the best value in the market, but their departure has left a gap that has yet to be filled.

Brokers have failed to provide cover for low-income people in the past because it has been unprofitable to do so. However, imaginative and well-constructed schemes do not only benefit the financially excluded, they can also work well for brokers.

CRIMINAL CONNECTIONS

- 100,000 people a year are imprisoned

- 500,000 people a year are convicted of non-motoring crimes

- one in 12 men under the age of 30 have been to prison

- each year, 18,000 offenders with a serious drug addiction are jailed

- a prison sentence of more than 30 months means it is never spent - it must always be declared

- even a sentence not exceeding six months has to be declared for up to seven years from the date of conviction.