The research claims those on the lowest incomes ‘continue to pay more for being poor’

People in poverty could be forced to sacrifice their insurance coverage to prioritise food and energy costs due to pricing “ping pong”.

That is according to new research by cross-party thinktank Social Market Foundation (SMF), which found that insurance was becoming increasingly unaffordable for those on low incomes as they were charged “a poverty premium”.

This meant some customers were paying more for insurance cover due to reasons they could not control, such as where they could afford to live.

People on lower incomes can end up paying £300 more for their motor insurance compared to wealthier drivers simply because of their postcode, said the report. 

Extra charges for paying monthly also impact customers on lower incomes, with fees for paying motor insurance monthly adding up to £160 per year in some cases. 

The study also revealed that 55% of those in poverty said they now find it difficult to pay their insurance bills, with many forced to make a choice between insurance and energy.

Fair By Design, which supported the research, called on the government and FCA to end “pricing ping pong”.

“The government says this is a job for the financial regulator to consider, while the regulator says this is something the government should sort out,” Martin Coppack, director of Fair By Design, said.

“We are stuck in a continual policy ‘ping pong’, while those on the very lowest incomes continue to pay more for being poor.

“This is why we are calling on the regulator to investigate the poverty premium in the insurance market to put an end to this stalemate.”

‘Penalising the poor’

The SMF examined the insurance market for people in poverty in partnership with Fair By Design, which campaigns to end the “poverty premium”.

The findings were based on a survey of more than 1,500 adults from low income households in the UK and focus groups with people living in poverty. The respondents were surveyed in June 2022.

Coppack claimed there were now two kinds of markets amid the higher prices for the poor.

“What’s clear from this research study is that people are not happy about being charged more for things that are outside of their control,” he explained.

“Insurance helps us weather all kinds of financial storms – we all want to feel like we have a safety net.

“But we have two types of markets – one that works for the heathy and the wealthy and one that penalises people for being poor.”

The extra costs that made insurance more expensive had a knock-on effect on its take up, which was already low amongst lower income families, the research added.

The SMF estimated that 5m people in poverty would find it impossible to pay for an unexpected cost of £500 without outside assistance.

The report urged the FCA to urgently investigate the causes of the “poverty premium”.

It also called on the government to take action on the findings and consider solutions such as state-backed insurance products for people on low incomes or banning certain rating factors.

James Kirkup, director of the SMF, added: “The insurance industry is providing an important product that supports the finances and peace of mind of millions of households.

“We hope the sector will rise to the challenge of addressing the poverty premium to ensure even more people can benefit from insurance.”