The UK’s financial regulator has warned insurers that the cost of living crisis could force struggling customers to cancel or reduce personal insurance policies, such as for homes and cars, as it called on businesses to step up their support to those most at risk.
The Executive Director of the Financial Conduct Authority for Consumers and Competition, Sheldon Mills, held an industry roundtable this month where he shared the regulator’s concerns about pressures on the cost of living with a range of financial groups, according to several people who were familiar with the meeting. On the insurance side, representatives of the Association of British Insurers and the British Insurance Brokers’ Association (BIBA) were present.
At the meeting, the FCA warned that people may struggle to keep up with their monthly payments and customers may be forced to cancel or lower their insurance coverage, leaving them without an adequate safety net, two of the people said. The FCA thinks this could pose a risk to a range of insurance lines, such as auto and home insurance, as well as life insurance and pet coverage, according to a person familiar with his thinking.
In a statement, the FCA said it “reminds firms of their responsibility to treat affected customers fairly and to consider what further support they can provide,” as the cost of living spirals — including for those customers “struggling to cover the costs of their services.” insurance premiums”.
The regulator expected that “when people try to save on insurance, the scope of their coverage is properly explained, including any exclusions or additional deductibles” and that insurers must also ensure that their products continue to meet customer needs.
Insurance, in addition to energy, is already one of the largest contributors to the so-called poverty premium, the extra money that lower-income households have to pay for services that are considered essential. Campaign groups have called for changes to ensure that low-income households are not effectively ‘priced out’ of the insurance market.
Insurers already offer several support schemes for vulnerable customers, which have been strengthened during the pandemic.
BIBA’s Executive Director Graeme Trudgill said customers who are cutting back on insurance coverage due to pressure on the cost of living “may be missing out on essential insurance coverage when they need it most.”
This can cause other problems as well, as motor insurance is a legal requirement and home insurance is often a prerequisite for homeowners’ mortgage contracts.
In the worst-case scenario, customers who switch to an advantageous insurance contract can come up short. Underinsurance, where customers do not have the financial coverage they need to recover all damage from an accident, already occurs in 40-45 percent of claims, according to BIBA figures.
Trudgill reiterated BIBA’s call for a reduction in insurance tax from 12 percent to 10 percent, which he claimed could be passed on to customers, and in some cases, such as tenants in clad buildings.
“We know that people have to make extremely difficult decisions as part of the cost of living and that people shouldn’t have to live without it,” said Matthew Upton, policy director at Citizens Advice.
He called for “the same focus” from the FCA and insurers on this issue applied to the problem of so-called loyalty fines, in which new customers faced sharp price hikes, a practice banned from January.