Insurers have been urged to work in partnership with the community sector and governments to provide insurance for low-income Australians.

Good Shepherd Microfinance has invited submissions on its discussion paper on low-income insurance, identifying contents and motor cover as priorities.

The organisation runs the country’s largest community microfinance program and hopes to pilot an insurance product designed for low-income Australians in late 2013.

It says evidence of demand for such a product is growing and affordability concerns are being more widely acknowledged.

Increased insurance uptake could increase industry income and market share while reducing the drain on relief agencies and governments and protecting policyholders, Good Shepherd says. 

In conjunction with NAB and Allianz, it previously offered an insurance product for low-income Australians. 

“While this product appears to meet the needs of low-income policyholders, [it] was not a market success and the products were withdrawn,” the paper says.

“A range of factors have been identified as contributing to low sales and limited interest, including poor marketing, the limited role a community finance worker could play in informing their clients and promoting the product without tacitly or actually endorsing it, and the product not being financially viable.”

The industry has raised concerns about the financial viability of low-income insurance products, the organisation says.

But if the low-income market is better understood, offering a sustainable product in future may be easier, the paper says.

For this group, difficulties in accessing insurance include affordability, distrust of insurers, inappropriate products, a belief they may not be insurable, limited product understanding, and modest assets not considered to be worth insuring. 

The affordability issue is particularly severe in flood-prone areas.

The report asks how industry barriers can be overcome, such as incompatibility between insurers’ systems and Centrepay, and an expectation premiums will be paid monthly or annually when income may be received fortnightly.

“There is a perception that low-income policyholders with low-value policies will yield low returns, making the development of such policies unattractive,” the report says. “Low-income clients may also offer limited opportunities for cross-selling or bundling of products.”

Regulation can be a barrier to innovative products and intermediaries such as housing providers or community finance organisations may not have the required insurance qualifications and knowledge.

The low-income market size is unknown and these customers often lack understanding of insurance.

The paper suggests an “insurance with rent” scheme could be implemented for public housing, where contents insurance is provided to tenants with the cost included in their rent.

It also suggests providing insurance through community finance hubs, which would provide opportunity to have conversations about insurance with clients and increase understanding.

Submissions are open until April 19.