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Citizens Advice is seeing a ‘clear rise’ in people coming to it for help who are unable to afford their insurance, the Treasury Committee has heard.

UK consumers believe insurance is becoming more of a “rip-off”, a committee of MPs has heard.

Treasury Committee member Dame Angela Eagle told a hearing into insurance: “My constituents and many people who write to the committee feel that insurance is becoming more of a rip-off.

“Because the price is going up, it’s harder to make a claim; people, when they do make a claim, often have to wait a very long time or aren’t dealt with very fairly.

“And that’s particularly the case for insurance that’s compulsory, such as driving insurance.”

I think that lack of transparency is probably what drives the low levels of trust that we see in the sector

She asked David Mendes da Costa, principal policy manager at Citizens Advice, if that is the kind of approach the charity sees.

He said: “I think the people who come to us for support… they are offered the price that they are offered and have no idea what’s sitting behind it.

“And often they’re not going to be aware of the fact that, on the basis of where they live and their postcode, for example, they might be being charged a lot more than someone who could even be just across the road from them or a few streets down.

“There isn’t the transparency, and I think that lack of transparency is probably what drives the low levels of trust that we see in the sector.”

Mr Mendes da Costa told the hearing that the charity is seeing a “clear rise” in people asking for help who are unable to afford their insurance.

He said: “To be clear, insurance really is an essential, especially when it comes to car insurance, at least. People need it to drive and people need to be able to drive in order to look for work, in order to get to work, in order to make hospital appointments or run their kids to school.”

He said people are having to make “impossible choices” and told the committee: “We know that people on lower incomes tend to be charged more for their insurance, setting aside this question of annual versus monthly (premiums).

“What we see in our own data is that people of colour are charged on average £250 more for their car insurance than white people.

“What we think is none of this is direct discrimination, no-one’s collecting this data in order to do so, we think it’s indirect discrimination on the way that postcodes are treated and in the way that risk is attached to it.

“But there’s no clarity on what’s driving that, what risk factors are attached to postcodes, or what cost factors are attached to them.”

Rocio Concha, Which? director of policy and advocacy, told the hearing: “What we need is fair value… and that is not only looking at price but also looking at… when you have a problem, what kind of service are you receiving from these companies and whether the process for claiming is a fair process.”

The hearing took place on the day that research from Which? indicated the rates being charged by some insurers to pay for monthly cover resemble the interest applicable for credit card borrowing.

In a later session, Charlotte Clark, director of regulation at the Association of British Insurers (ABI), told the committee that part of the reason that rises in motor insurance may look so significant is that “it’s coming off the back of the pandemic, where motor insurance in particular was reduced quite significantly, because the risks of being in a car accident when you’re at home are quite low”.

She later added that it is important for customers to have the option to pay monthly for insurance, saying: “There are additional costs to paying monthly, so in terms of extra administration, you have the cost of capital, so we haven’t got all the money in up-front as insurer, so you can’t invest that money, so there are, what I would say, legitimate costs.”

Asked about what Mr Mendes da Costa told the committee earlier about insurance, Colm Holmes, chief executive of Allianz, told the MPs: “Categorically, we don’t use ethnicity, that’s just a fact. We don’t.”

He continued: “With regards to why postcode is important, what you’re looking at is population density, you’re looking at vulnerable road users, you’re looking at… the number of accidents that take place within that postcode.”

What we’ve also seen is the insurance sector has not done a particularly good job of forecasting inflation, the impact it will have on their supply chains and protecting those parts of their business

Matt Brewis, director of insurance at the Financial Conduct Authority (FCA), later told the committee the regulator has been looking at evidence of how inflation has impacted the motor sector.

He said: “In terms of price, we’ve been looking at the data that the ABI have produced, where we’ve seen the increase in costs that insurers have faced, from supply chain issues, from rising costs because of complexity of vehicles and the rising number of claim instances that people have suffered.”

Mr Brewis added: “And what we’ve also seen is the insurance sector has not done a particularly good job of forecasting inflation, the impact it will have on their supply chains and protecting those parts of their business.”

He said the regulator is meeting with price comparison websites, brokers and consumers “to understand the concerns of consumers and where they are seeing issues”.

Mr Brewis said his teams intervene frequently with individual firms “where we see individual cases coming up”.

He said the FCA also works closely with the ombudsman to understand where problems are bubbling “and look to intervene swiftly”.

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