FCA survey data tracks 13% of consumers cut back on insurance due to cost-of-living crisis

The regulator polled more than five thousand people who had been policyholders in May 2022.

It found in January that 8% of people had cancelled one or more policies, while 7% had reduced their level of cover on at least one policy.

The watchdog assessed that with some people having both, this meant 13% of May 2022 policyholders – 6.2 million people – had dropped their level of cover.

Cancellations

The FCA listed that extended warranty was cancelled by 5% of policyholders in the period; the top figure in the data.

The next highest in terms of the proportion of cancellations by people previously holding a policy was separate home contents insurance, which was chopped by 3.8% of the cohort.

Cutting back on cover could result in an increase in underinsurance, a reduction in resilience, and a greater potential for non-disclosure and fraudulent claims.

Graeme Trudgill

Pet insurance was cancelled by 3.8% of policyholders, while 3.1% of gadget insurance buyers ended their protection.

The only other type of policy that had more than a 1.5% cancellation rate was mobile phone insurance at 2.5%.

These details were released ahead of the publication of the FCA’s full Financial Lives 2022 survey report, which is due out later this year.

Biba

This has followed on from similar research by the British Insurance Brokers’ Association, albeit the trade body covered personal and commercial customers.

In late 2022, Biba surveyed members to identify the main areas where customers had sought to reduce or cancel insurance because of the impact of the cost-of-living crisis.

Biba found 42% of respondents had clients removing an add-on cover in private car and motorcycle insurance.

For home buildings and contents insurance, 38% advised that they had removed add-ons, including accidental damage, personal possessions and legal expenses.

Stand-alone cyber insurance was one of the most affected areas, with 40% of clients that previously held cover no longer insuring their cyber risks.

In its 2023 manifesto, the trade body warned that it was “concerned, given the cost-of-living crisis and high rates of inflation, that the financial resilience of consumers and businesses will come under renewed pressure”.

Greatest challenge

At its conference in Manchesteron 10 and 11 May, Biba launched a guide to help brokers explain to customers the dangers of cutting back on cover during these tough times.

Biba executive director Graeme Trudgill said: “Cutting back on cover could be a false and dangerous economy, resulting an increase in underinsurance, a reduction in resilience, and a greater potential for non-disclosure and fraudulent claims.”

During a conference session titled Broking challenges in difficult economic times, the audience at the event ranked clients cutting back cover as the greatest challenge brokers face right now.

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