Opportunities for insurance companies during the cost-of-living crisis

It is inevitable: when the costs of goods and services for repairing cars or houses goes up, then so will insurance premiums.

As consumers, many of us feel – and insurers know – that this has been especially true during the recent cost of living crisis. Experian’s unique data sets enable us to quantify just how big this effect has been.

We can see, for example, that between January 2022 and January 2024, average car insurance premiums have risen by 45%. For home insurance, premiums are generally lower, but the increase of 40% is none the less significant.

It all adds up and it’s not surprising, perhaps, that people have responded to these increases by seeing if they can find a better deal.

Our data shows that before January 2022, insurance quotations were rising slowly, albeit steadily. But then, two things happened. First, the cost-of-living crisis started to impact markets in all sectors. But in the insurance market, this coincided with the introduction of new Price Parity regulations which ensure that new customer insurance deals are now also offered to existing customers. What had been a slow, steady rise in the number of insurance quotations being produced, turned into a rather faster and steeper increase. Instead of the status quo, people started to shop around.

What’s interesting – and significant for insurers to understand – is that despite this increased quotation activity, it appears that better deals were not to be found. When we look at the number of new policies being opened since January 2022, we do not see the same climb as is apparent when we look at new quotations. Instead, the number of new accounts being opened has remained fairly static.

Changing attitudes to insurance

The increased quotation activity highlights the fact that people’s attitude to spending in general, and insurance in particular, seems to have been shifting as they respond to cost of living pressures. We can see the shifts in the number of people taking out instalment plans – and this provides a great insight into how behaviour is changing.

Two key trends emerge here:

Insurance priorities for people who are financially vulnerable

Of course, just because some people are shifting to paying their insurance premiums using instalments doesn’t mean that they are unable to afford those premiums. Unfortunately, this isn’t the case for all.

To get an insight into the relative priorities that people place on different types of expenditure, traditional analysis ranks priorities based upon the different rates of arrears.

At first glance, these figures suggest that paying insurance is a high priority – in fact it is in third place behind communications (mobile phone contracts), and mortgages.

But if you factor in accounts where either the customer has settled early, or the insurer has cancelled the agreement – then the picture changes dramatically. In this scenario – which, after all, gives a truer insight into how people who are unable to afford all their debts behave – insurance drops down towards the bottom of the list of priorities. It seems that when choices get really tough, people tend to prioritise their communications, mortgages, retail finance and credit cards over insurance. Some people appear to be willing to forego insurance altogether.

Conclusion

The figures paint a story of a society which has a greater number of financially vulnerable people in it than even just a few years ago. Older people are looking at changing the way they’re paying for insurance premiums; and some particularly financially insecure people are dropping insurance altogether.

And yet, at the same time, people across the board are actively looking to find new, better deals – but discovering that none are to be found.

For insurance companies there is, perhaps, a very real window of opportunity here. Competitively creative solutions, which perhaps offer more flexible or attractive payment terms, may prove to be financially very rewarding. Such solutions may also enable insurers to better meet the needs of their most vulnerable customers.

For firms offering consumer credit – which includes Insurance Premium Finance – understanding an individual’s financial health has never been more important. As we have seen, this makes great business sense as it helps insurers mitigate risk and identify windows of opportunity.

But it is also essential for compliance. According to the FCA’s Consumer Credit Sourcebook (CONC), insurers must satisfy themselves that a customer is able to repay a loan comfortably by assessing their income, expenditure and wider financial commitments. (“Firms must make a reasonable assessment, not just of whether the customer will repay, but also of their ability to repay affordably and without this significantly affecting their wider financial situation”, (CONC Section 5.2A).

The FCA’s recent Consumer Duty rules have enhanced these requirements. The new measures are designed to prevent people becoming over indebted by obliging lenders to assess the affordability of their financial products for individual customers. As a result, verifying income and expenditure is no longer enough; insurers must now develop a much broader understanding of a customer’s financial behaviour and potential financial vulnerabilities.