Vulnerable insurance customers in 'lose-lose situation', report warns

“We consider it timely for the government to consider its role in addressing the poverty premium in insurance and to take forward our findings with the FCA [Financial Conduct Authority] and industry”, the report said.

David Heath, chair of the IFoA’s policy advisory group, added: “While the poverty premium existed in insurance prior to the Covid-19 pandemic, the job losses and other negative economic impacts precipitated by the pandemic are likely to have exacerbated its incidence and impact across our society, and will continue to do so in the future.”

The report suggests the government could extend the Flood Re model of insurance for different insurance product lines, to cover low-income and vulnerable consumers who are priced out or excluded from the market.”

The Flood Re Scheme, a joint initiative between the UK insurance industry and the UK government, began in 2016 to improve the availability and affordability of household insurance for consumers who live in high flood risk areas.

It created a not-for-profit reinsurance fund which enables insurers to insure themselves against losses because of flooding.

The IFoA and Fair By Design suggest equivalent schemes under names such as Postcode Re or Health Re.

They also recommend the creation of “clear and simple products”, in line with the 2013 Sergeant Review which they argue was “not adopted by the insurance industry”, as well as more auto-enrolment requirements for employers to boost group insurance access, and the introduction of microinsurance for those most at risk.

“The government should work with the FCA and industry to determine what changes are needed within the public policy and regulatory environment to support and incentivise the insurance sector to develop and deliver innovative solutions to address the poverty premium.”

In the meantime, the report said: “The FCA should support the government in this work by undertaking a study into the regulatory outcomes the market is currently delivering for low-income consumers. This study should also consider the interaction between the Equality Act and insurance pricing.”

Liz Barclay, chair of Fair By Design, said the insurance market “continues to chase the ‘healthy and wealthy’ – the ‘best risk’”. 

She continued: “The issues that this report brings to light are difficult and span the remits of government, regulator and industry. 

“But people’s lives are messy and don’t fit neatly into institutional remits. We need solutions that fit people rather than institutions. We need collaboration and leadership. I hope this report, and the collaborative approach that went into it, are just the start of the dialogue and action.”

To inform the report, Barclay’s team and the IFoA held individual discussions and roundtables with bodies such as the Competition and Markets Authority, the Chartered Insurance Institute, HM Treasury, the Financial Services Consumer Panel, and the FCA.