Recently the FT ran a story looking at research by The Exeter that found many cash-strapped UK consumers were cancelling insurance products, just to pay bills and keep their family well fed. The Exeter data found that about 26% of UK workers might have cancelled a policy in 2023 as inflation really hit food prices, energy bills and of course, car insurance premium rates.
It’s interesting that the survey mentioned working people, as those on minimum or low wages are often denied support like cost of living payments, which last year totalled some £900 for those on benefits, on top of £650 per household in 2022. This divisive segregation of working vs non-working people is arguably one of the most corrosive aspects of government policy of the last 20 years. It often no longer pays to work, depending on your household costs, number of children you have and so on.
HOW DO WE SOLVE A PROBLEM LIKE RISING PREMIUMS?
IE has covered the car insurance problem in detail in the past, as supply chain issues affect repairs, asset values of EVs rocket and labour and storage rates incresed rapidly since the pandemic too. It’s a set of challenges that cannot be resolved easily; people want their car fixed, or a new model, or a cash settlement they think is fair. Mix in an ever increasing percentage of uninsured drivers on pot-holed UK roads and you have a recipe for financial stress.
A recent survey by icompario found that the rate of increase in uninsured drivers ebing caught by the Police was 12% per year, where data was supplied to an FOI request. Let’s assume that the Police in Torquay (up 345% last year), Northampton, (up 34%) Harrogate and Blackpool have missed several hundred uninsured drivers due to lack of time and resources, and you begin to understand the scale of the problem. In itself, a refusal to pay mandatory car insurance is an existential threat to insurers and this often the attitude which can be seen in roadside stops and checks carried out by UK Police forces. There is case after case of banned drivers simply ignoring the court and carrying on as normal, until an incident occurs which injures or kills someone.
Cars are safer than ever, packed with ADAS ststems, airbags and technology. The problem is an ever-growing segment of wilfully dangerous drivers, quite happy to drive without the corect documents.
SOLUTIONS: TOUGH PENALTIES & FLEXIBLE PAYG COVER
Society is fundamentally changing. It isn’t just about affordability. If you look at say travel insurance for those aged under 40 with no medical conditions you can see the premiums at £25-£45 for a week are a tiny percentage of a holiday which may cost over £2000 for a family or couple. The attitude for many people is that Go Fund Me will bail them out of a foreign hospital, or jail, if the worst happens.
So an understanding of how Britain has changed, that many people regard insurance companies as `con artists, vultures, blood-suckers’ and worse, is an essential starting point. Read your social media replies if you don’t believe IE, the anger is real, and growing.
The sooner insurers understand that reality and stop punishing the law abiding majority for the illegal driving – and damage to life and property – by uninsured drivers, the better. The first step towards resolving the issue is for insurers to spell out the need for asset seizures and benefits/wages sanctions legislation targeting those who refuse point blank to obtain a valid licence, MoT or insurance. The existing system of paltry fines paid monthly just isn’t a serious deterrent, in fact it’s way cheaper than actually insuring your car in many cases. Campaign for law changes, design products that genuinely reward loyalty and a no claims history.
FLEX
But perhaps another part of the affordability solution is more flexible insurance, which is essentially on-demand like energy or water. IE has stated many times that the 1990s Fully Comp or TPF&T choices are outdated. Such binary choices are from another era where people carried paper Certificates around in the glove box, or cheaper premiums for women simply because they are women. Yep, such sexist thinking actually underpinned a huge swathe of car insurance pricing back in the day.
The benefit of gathering driver data, in real time, has to be PAYG insurance, so the cost per trip IS affordable. Business, passenger or delivery cover can be activated for a single day via app, not paid upfront for year round cover, when it isn’t needed. In short price the risk more accurately and it becomes more affordable, less of a financial sting for most consumers.
The same pick `n’ mix approach can be applied to private health insurance, Life, contents and more. Life happens pretty fast as Ferris Bueller noted and when your circumstances change that is the time to buy some embedded cover on new bicycles, cameras, laptops etc.
These are the radical products the industry must build to save itself. The alternative is that people will simply stop paying and we will reach a tipping point in certain areas of the UK where there are about a third of drivers on the roads who are uninsured. That will be chaos.
Rory Yates, Global Strategic Lead, at EIS offers these insights;
“Cutting back on insurance in areas where it isn’t mandatory isn’t new, but is undoubtedly alarming. Often the need to cut back belies a general macroeconomic issue with rising household costs. This in turn relates to greater degrees of financial and job market insecurity. Ironically, these risks increase the need for more insurance cover, not reduced coverage. Especially where it could provide the necessary protection if financial and employment challenges were to arise.
“For me, this highlights why it’s critical for the FCA’s Consumer Duty to take hold. Static insurance offerings, relying on forgotten Direct Debits aren’t fit for modern lives. We are in an increasingly changing world. Risks and uncertainties combined with a lack of understanding on the value of insurance isn’t just worrying, it needs to be confronted.
“Answers are plentiful, but they’re often hard for insurers to implement. What about more flexible life cover, for example? If your budget has been cut due to rising costs of living, then we should be able to flex the cover we have, and do it easily at the scroll of a screen, rather than exiting the policy.
“The same is true when we make life changes like buying a bigger house, adding another policy, or simply adjusting an existing one. There’s signs of these experiences emerging, but they’re built around an insurance model that doesn’t play a central role in people’s lives and financial decision-making.
“Insurance created this wonderful vehicle for packaging a set of risks a person might experience, and we called them policies. These are essentially mathematical models that allow insurers to price these risks, and engineer financial models that make this service viable. But engineering a business around a policy has meant the insurer risks knowing close to nothing about their consumer or what’s happening in their life. In many instances, they can’t even see when one customer has more than one policy with them.
“For most of us, the value of cover is unknown. It’s never been explained in the context of our lives. We often choose it because it seems sensible at the time, or our parents and friends have it, or it’s mandated to us. Then, when we go to review our finances in challenging times, it’s inevitable it gets put on the chopping block of hard budget considerations.”
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