The Financial Conduct Authority has urged insurance companies to protect their customers.
In a Dear CEO letter, the regulator shared its concerns about the rising cost of living and its impact on consumers.
As a result, the FCA asked insurance company bosses to make sure customers are protected from unnecessary products or fees.
The regulator expects them to make sure customers are in the right products.
It also requests insurance firms to work with customers to stop them cancelling necessary cover.
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey said: “Today’s move by the FCA aims to protect households who may feel they need to cut back, or even cancel, their insurance policies to relieve the tension on their stretched budgets in the coming months.
“Lower income households already tend to have less insurance and they often pay higher premiums.
“The HL Savings and Resilience Barometer shows only 43% of households have adequate life insurance cover for instance and this drops to just 27% of lower income households.
“There’s concern that as inflation continues to rise people may target insurance as their next spending cut.”
The FCA set out a list of expectations of firms in the insurance sector.
FCA’s expectations for insurance firms
- Customers in vulnerable circumstances: Providing appropriate support to
customers in financial difficulty. This should include consideration of ourCovid insurance and premium finance guidance. - Fair Value: Ensuring consumers get access to fair value products.
- Premium finance: Considering premium finance as part of fair value assessments, with price (APR) likely to be the most significant factor in determining whether the premium finance provides fair value.
- Underinsurance: Firms must provide customers with appropriate product information and only propose policies that meet customers’ demands and needs.
- Claims: Handle claims promptly and fairly.
- Multi occupancy buildings: Include leaseholders when determining what might constitute fair value or be in the customer’s best interests and meet their needs, or in the future deliver good outcomes for consumers under the Consumer Duty.
The regulator will monitor and scrutinise insurance firms on whether they apply its instructions.
The City watchdog is also considering options for adapting its insurance Covid guidance for customers in financial difficulty. This could potentially include a consultation later this year.
Morrissey added: “It may be tempting for people to save money today by cutting back on insurance cover. However, doing this can have much bigger financial consequences.
“One example given is someone deciding against buying travel insurance but then becoming ill on holiday and incurring large medical bills. Another could be cutting back on income protection and then losing your job.
“The potential to exacerbate financial problems is huge and people could find themselves in the awful position of financial worries affecting their health which can then make these worries even worse.”
Yet the FCA found that households are not targeting their insurance costs to save money.
According to the regulator, that might be partly due to the 2022 premiums for core products being similar or lower than 2021 prices.
The ABI reported in May that average prices for home buildings and contents insurance dropped 7% and 11% respectively.
In August, it reported that average motor premiums were lower in Q2 than in the equivalent quarter in 2021.
“We may see this lower premium trend reverse, as costs to firms increase, including as a result of supply chain issues, inflationary pressures, higher claim costs, as well as firms removing unsustainable introductory discounts,” the FCA stated.