Poverty Premium: UK’s poor struggle to pay for insurance

The Social Market Foundation (SMF) has released a new report highlighting the difficulties faced by people in poverty when it comes to paying for insurance.

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The “poverty premium”: What it is and how it affects those in poverty

According to the report, over half (55%) of those in poverty in the UK are struggling to pay for insurance due to the “poverty premium” – where those on low incomes are charged more for insurance due to factors outside of their control, such as where they can afford to live.

The report notes that people on low incomes often pay significantly more for insurance than better-off individuals. For example, those in poverty can pay £300 more for car insurance than those with higher incomes, simply due to their postcode.

Additionally, the inability to pay for insurance upfront can result in extra charges for paying monthly, with an additional £160 being charged for car insurance paid on a monthly basis.

The impact of extra costs on insurance take-up among lower-income families

These extra costs can have a knock-on effect on the take-up of insurance, which is already low amongst lower-income families.

This can leave people in poverty unprotected against life events that could push them over the edge.

The SMF estimates that 5 million people in poverty would be unable to pay for an unexpected cost of £500 without outside assistance. Furthermore, over the next five years, an estimated 2 million people in poverty may face an insurable loss.

Urgent action is needed to address the poverty premium in insurance

The SMF report highlights the need for urgent action on the part of both the government and the Financial Conduct Authority (FCA), the industry regulator.

While just 7% of people believe that it is fair for those on lower incomes to pay more for insurance, neither the government nor the FCA has taken action on the issue. The report calls on the FCA to investigate the causes of the poverty premium and report on firms’ approach to the issue.

It also calls on the government to take action on the findings of the investigation, including considering solutions such as state-backed insurance products for people on low incomes or banning certain rating factors.

Consequences of being priced out of insurance for individuals and society as a whole

The poverty premium in insurance is a significant challenge for those in poverty, and its effects can be far-reaching. Without access to affordable insurance, individuals may be forced to choose between paying for basic necessities such as food and energy bills or purchasing insurance.

Additionally, without insurance, individuals may delay seeking medical care until their conditions become more severe, leading to higher costs and poorer health outcomes in the long run.

Conclusion

It is clear that urgent action is needed to address the poverty premium in insurance. The government and the FCA must work together to investigate the causes of the poverty premium and take action to ensure that people in poverty have access to affordable insurance.

With the right policies and regulations in place, it is possible to reduce the poverty premium and ensure that individuals in poverty have the protection they need against life’s unexpected events.