‘Poverty premium’ sees half of Brits struggle to pay insurance bills
The cost-of-living crisis is putting financial pressure on 55% of households who are now finding it difficult to pay for insurance, a report suggests.
Some people are also cancelling their insurance policies and putting this money towards essential bills such as food and energy instead.
Yet the report found that five million people living in poverty would find it impossible to pay out for an unexpected cost of £500 without outside assistance.
The report comes at a time when insurance costs are rising, by 8% for car insurance in the last quarter of 2022, and the price of everything else is soaring amid the cost-of-living crisis.
Low-income households pay a ‘poverty premium’ for insurance
Those on a low income are also paying more for insurance, because of where they live or the fact they can’t afford to pay for a policy in one go. Often, these higher insurance costs are out of their control.
In some cases, they are paying around £460 more than those on higher incomes, the report by the Social Market Foundation (SMF) found.
People on low incomes can pay £300 more for insurance, simply because of their postcode. When insurers calculate a premium they take into account a person’s postcode to assess the risk involved, and how likely they are to make a claim on the policy.
Those living in areas of high crime, where the risk is higher, for example, will pay on average more expensive insurance bills even though this is often completely out of their control.
While those that pay for their insurance in monthly installments, which have interest applied to them, may pay £160 more than those that pay in a yearly lump sum, the report found.
The report, from the SMF and poverty campaigns Fair by Design, found that 7% of people think it’s fair that those on lower-incomes pay more for insurance. While 66% of those asked said it was unfair.
Six in ten of those in poverty also said that buildings and contents insurance should be classed as an essential household bill.
It also found that those earning less are also more likely to need insurance and less likely to have money set aside to pay out when things go wrong, such as a car breaking down or for damage after a flood or break in.
These low-income groups are also more likely to turn to expensive credit if they need the money to pay out for an unforeseen incident, pushing them into more financial problems if they don’t have insurance in place.
The SMF said that neither the Government nor regulator are prepared to take action on the ‘poverty premium’ in the insurance market.
It is now calling on the Financial Conduct Authority (FCA) to investigate the causes of the ‘poverty premium’ within the insurance industry.
‘People in poverty going without insurance reflects the way the market works’
James Kirkup, director of the Social Market Foundation, said: “Insurance is rightly seen as an essential good, something that everyone should have to protect them from unexpected losses.
“Yet the insurance market is operating in a way that means too many people in poverty either can’t afford that product, or face unexplained higher costs when they do buy it.
“People going without insurance reflects both the cost-of-living crisis and the way the insurance market works for people in poverty. We need politicians and regulators to work with the insurance industry to investigate the causes of the poverty premium so that everyone can get this vital product at a reasonable price.”
“The insurance industry is providing an important product that supports the finances and peace of mind of millions of households. We hope the sector will rise to the challenge of addressing the poverty premium to ensure even more people can benefit from insurance.”
If you’re struggling to pay your insurance bill, there are many ways you can reduce your costs without cancelling the policy.
But if you can’t afford your policy, it’s important to speak to your insurer as soon as possible. It may be able to reduce your payments or find a cheaper policy for you to switch to.