Insurance has become a significant cost for consumers – in fact, recent research found that more than two million people have to borrow from family or friends to cover the cost of their premiums. Very few people now pay for insurance in one single payment and many are risking huge bills and potentially difficult situations further down the line by not taking out insurance at all. Is the rising cost of insurance in the UK having a much more damaging impact than many people realise?
The cost of insuring cars, homes and holidays in the UK has been increasing in recent years. For example, in 2018, car insurance premiums shot up to record highs with average premiums from £900. Last year saw a wide range of increases in insurance costs, many of which were the first rises in 12 months. Around 66% of people say that the cost of their insurance has increased in the past two years. For 15% of people the cost has gone up by 10% in the last year alone. For consumers, this has meant coping with yet another additional cost at a time when austerity is undermining many household budgets and Brexit uncertainty is making life difficult.
How have consumers responded?
Just over half of people now pay for insurance in a single lump sum with 46% choosing to opt for regular instalments instead. However, the impact of the rising cost of insurance goes far beyond switching to monthly payments. A recent study found that consumers have been taking some fairly drastic measures to cope with this increased expense, including:
Around 14% of people have cancelled insurance policies simply because they couldn’t afford to cover the cost of the premiums anymore.
Switching to a different – perhaps less comprehensive – policy or provider
Around a quarter of consumers have responded to price increases by downgrading their insurance policy to a lower quality option with less comprehensive cover. An additional 18% of people said that although they hadn’t taken this step last year they were considering it for 2019.
What impact might this have?
Many consumers now don’t have the right level of cover for their needs. In an effort to reduce insurance premiums, some consumers are taking out cheaper policies that don’t have the cover that is required for their individual situation. So, if they need to make a claim, this type of policy could prove to be quite useless.
Some are breaking the law
Cancelling or downgrading certain types of insurance – such as car insurance – can mean that a consumer is actually breaking the law because the insurance they have doesn’t meet legal requirements.
What’s the solution?
It’s essential to provide customers with a range of different payment options, from monthly instalments to one up front payment. Payment flexibility not only helps to improve customer satisfaction but will also enable the industry to avoid a situation where many of those consumers it is dealing with either have the wrong cover or no cover at all.