BLOG: Financial inclusion can be good for financial service businesses as well as for people

October 18, 2016

Discussions about financial exclusion usually focus, understandably, on people who are disadvantaged because they can’t, or don’t, access financial services which could improve their lives. The Financial Inclusion Commission report showed that many millions of people in the UK lose out dramatically.

Recognising a problem is one thing. Fixing it sustainably is another.

Government action is sometimes the only solution, but it is too easy to say so and move on. Voluntary organisations and CSR activities of companies do great work, but have limited resources. It can make a huge difference if solutions are commercially sound, as well as sound for the customer, so that businesses don’t have to be pushed to provide what is needed, but really want to. 'The only business-based large scale solutions which are sustainable, are those which make commercial sense - even if maybe in the longer term or maybe with an appropriate nudge or encouragement from Government.

Two recent examples show it can be done. 10 years ago, two problems of access, deemed intractable for many years were, first, getting lower paid employees to have pensions savings, and second, that it was impossible for people exposed to flooding to get insurance.

Assiduous work by industry and Government has seen huge improvements in access. Automatic enrolment has seen 6 million new people start pensions. Creating ‘Flood Re’ means that a million people, who couldn’t previously get house insurance, now can.

Massive changes which, whilst assisted by Government initiatives, and providing good value to customers, are commercially viable and sustainable. Of 6 million new pensions savers, three-quarters are in private pensions.  That’s 4.5 million new customers - a marketing man’s dream. A million more customers can generate huge new premium flows for house insurers.

The question is whether lessons can be learned, from these successes, to address problems which look as intractable now as pensions and flood cover did, ten years ago.

The Financial Inclusion Commission, in partnership with Scope, and building on the Financial Conduct Authority’s work on improving access to financial services, is holding a round table in November to see if other access to insurance problems can be solved. The ‘intractable problem’ it will seek to address is illustrated by the Commission’s finding that 50% of households in the lower half of the income distribution don’t have home contents insurance.  That’s a quarter of all households. If a sound, commercially viable and good value solution can be found, that’s a big opportunity for the industry as well as a big comfort for many people.

Leading figures from the insurance industry and the organisations which support under-served groups have agreed to attend the round table. Miracle solutions are unlikely to appear – the common factor in the pensions and flood insurance examples is that their genesis took more than a decade.  But, hopefully, lessons from them can speed up the process, and even decades have to start somewhere!

Laurie Edmans CBE spent his executive career in the pensions and insurance sector, establishing and leading businesses, with a background of sales, strategic marketing and public/industry affairs.