The UK’s financial regulator has warned insurers that the cost-of-living crisis could force struggling customers to cancel or cut back on personal insurance, such as homes and cars, as it urged firms to provide more support to those most at risk.
FCA chief executive Sheldon Mills hosted an industry roundtable this month where he shared the regulator’s concerns about pressure on the cost of living with a range of financial groups, according to several people familiar with the meeting. Representatives of the Association of British Insurers and the British Insurance Brokers Association (BIBA) attended from the insurance side.
At the meeting, the FCA warned that people could struggle to keep up with their monthly payments and that customers could be forced to cancel or lower their insurance coverage, leaving them without a proper safety net, two people said. The FCA thinks it could be a risk to a range of insurance lines, such as auto and home insurance, as well as life and pet insurance, according to a person familiar with their thinking.
The FCA said in a statement that it “reminds firms of their responsibility to treat affected customers fairly and consider what additional support they can offer” as the cost of living rises, including for those customers who are “struggling trying to cover the cost of their services.” insurance premiums.”
The regulator expected that “as people seek to save money on insurance, the extent of their coverage is well explained, including any exclusions or additional excesses” and that insurers also need to ensure that their products continue to meet customer needs.
Insurance, along with energy, is already one of the largest sources of the so-called poverty surcharge, the extra money that low-income households have to pay for services deemed life-saving. Campaign groups called for changes to ensure low-income households don’t actby price» insurance market.
Insurers are already offering various support schemes for vulnerable customers, which have been stepped up during the pandemic.
BIBA chief executive Graham Trudgill said customers who cut their coverage as a result of pressure on the cost of living “may miss out on vital insurance coverage when they need it most.”
This can create other problems, given that vehicle insurance is a legal requirement and building insurance is often a condition of homeowners’ mortgages.
Customers who switch to a reduced price insurance contract may be left without money if the worst happens. According to BIBA, under-insurance, where customers do not have the financial coverage they need to recover all damage from an accident, is already showing up in 40-45% of claims.
Trudgill reiterated BIBA’s call for a tax cut on insurance premiums from 12% to 10%, which he argued could be passed on to customers and waived in some cases, such as for tenants in clad buildings.
“We know that people have to make extremely difficult decisions due to the cost of living crisis, and people should not live without making ends meet,” said Matthew Upton, director of policy for Citizens Advice.
He urged the FCA and insurers to give “the same attention” to the issue that has been brought to the issue of so-called loyalty penalties, when new customers are faced with steep price increases, a practice that has been banned since January.