Rising premiums have seen more customers turn to premium finance
Nearly one in five (19%) UK consumers cancelled or cut back on insurance policies because of the financial pressure caused by the Covid-19 pandemic.
Travel insurance was the worst affected line, but cuts were also seen in home and car insurance as well as pet, health and life insurance.
This is according to the latest research from Premium Credit’s Insurance Index.
Adam Morghem, Premium Credit’s strategy and brand director, said: “The financial pain of Covid for millions of households is mounting and insurance is one of the bills that people are cutting back on to save money.
“The affordability issue was already a major concern for households before the pandemic with average bills rising 14% in a year – way ahead of inflation – making it more difficult for people to pay for the insurance they need and value.”
Therefore, Premium Credit is advising customers to consider premium finance to relieve the financial burden induced by the pandemic.
Premium Credit’s index looks at insurance buying and how it is financed.
The research found that rising premiums were the main reason for people taking out more credit, with 35% of those who borrowed money doing so as prices have increased.
It found that even prior to Covid-19, insurance customers were under pressure financially, revealing a reliance on credit; approximately one in four customers (25%) borrowed money to pay for cover.
Consumers that have used credit to pay for insurance are using on average £520 more credit than a year ago.
Owen Thomas, chief sales and marketing officer at Premium Credit, added: “Premium finance has become a very cost-competitive means for consumers to buy insurance and better manage their finances through spreading payments.
“At a time when insurance is becoming more expensive, it can be a good alternative to other forms of credit.”
Meanwhile the pandemic has driven a further 5% to take out credit. This reliance on credit demonstrates how important customers believe it is, according to the premium finance provider.
Government data showed the average cost of a household’s insurance has increased by 14% year-on-year to more than £1,000, however Premium Credit’s research revealed that 61% of respondents believe that insurance is a high priority in their household finances.
Premium Credit also found that households are taking risks with their finances to pay for insurance.
More than two out of five (44%) said they pay on credit cards, while more than half (53%) use the monthly direct debit finance offered by insurers.
In previous research, conducted before the lockdown, 41% of customers who had increased borrowing to pay for insurance did so because premiums had increased, while 14% had done this because their finances were stretched.
Around one in 10 (9%) who have borrowed money to fund insurance fear they might default on the loan in the next year.