Motor insurance ‘a door shutting in peoples’ faces’

Motor insurance can be more affordable for consumers, but is instead ”a door that is shutting in peoples’ faces”.

That was according to Sacha Romanovitch, chief executive of Fair4AllFinance, who said there was a “massive issue” with such products as consumers finds themselves in situations where it is “unaffordable”.

Romanovitch made the comments during the ABI Conference yesterday (27 February 2024), where she said there were insurance products on the market that could serve consumers as a “stepping stone”.

This means that they cheaper so policyholders have more money left over, in turn making them financially better off.

Romanovitch felt that motor insurance, which is compulsory for drivers, could serve as a stepping stone.

She noted the product was needed for consumers to “do things that are important to them” or improve their lives, such as “[taking] a higher paying job”.

However, she said costs were shouldered by individuals in the most “financially vulnerable situations”.

“The very thing that could be the stepping stone, becomes a door that is shutting peoples’ faces,” she said during a session, which was entitled Financial inclusion: can insurance and long-term investment savings be both inclusive and profitable.

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This came after ABI figures showed that the average motor insurance premium paid in the UK increased by 12% between 1 October and 31 December 2023 – up from £562 a year to £627.

Price rises have been driven by claims cost inflation, with EY estimating that for every £1 paid in premiums in 2022, insurers incurred £1.11 in claims and expenses.

It now estimates that this figure rose to £1.14 in 2023.

Romanovitch felt that higher costs within the personal lines market was forcing consumers to terminate their insurance policies.

This was evident in the FCA’s financial lives survey, published on 17 May 2023, which found that 3.6m insureds cancelled at least one of their policies in the six months leading to January 2023.

Romanovitch said that her firm conducted research to find out why people either cancelled or did not renew their insurance in 2023.

She explained the largest group were facing financial pressures – figures showed that 3.6m were dealing with short-term loans and day-to-day struggles, while 2.2m individuals had debts.

In turn, Romanovitch explained that looking at products that serve consumers as a stepping stone “is important”.

“What’s critical with all financial products or services is people looking at what that [product or service] enables someone to do,” she said.

”What opportunities is that creating for people? But also, what shocks does it enable people to withstand.”