Cut backs in consumer spending could cost the insurance industry up to £1.5 billion, according to new data from accountants Deloitte.
The research found that more than a quarter (26 per cent) of consumers in the UK who buy insurance from price comparison sites are looking to reduce their insurance spending. Fewer than half (40 per cent) said they definitely wouldn’t cut back on the insurance products they buy in the next 12 months to reduce the cost of their policies.
Of those looking to reduce costs, 20 per cent said they would cut Payment Protection Insurance (PPI), which covers repayments on products such as personal loans, mortgages and credit cards if the borrower is unable to do so due to loss of earnings as a result of accident, sickness, unemployment or death.
Eighteen per cent said they would consider changing from comprehensive motor insurance to third party cover, while travel insurance (12 per cent), pet insurance (nine per cent) and health insurance (nine per cent) also look set to be cut.
In the Midlands it was an almost identical story, with travel insurance (11 per cent), pet insurance (nine per cent) and health insurance (11 per cent) the three most likely to be stopped in order to save money, after payment protection (20 per cent) and changing car insurance policies (18 per cent).
Matt Perkins, partner and head of financial services in the Midlands for Deloitte, said: “At a time when households have less disposable income, it is understandable that many will look at how they can reduce their spending. However, consumers should think carefully about which types of insurance they need most in a down-turn. A short-term saving could cost a lot should an accident occur and adequate insurance cover isn’t maintained.
“Of particular concern is the number of people who are looking to cancel PPI policies. As the economy faces a difficult period, this is the time when people may most need PPI cover.Many have questioned the value of PPI in recent years when unemployment has been low and the economy buoyant.
“But with things looking less certain over the next few years, for those people who are made redundant, PPI cover could mean the difference between staying solvent and losing one’s house.”
Based on the responses to the survey, Deloitte estimates that around £1.5 billion of insurance premium revenue is at risk due to consumers rationalising the use of their disposable income. This comes at a time when the market is already very competitive.
While average insurance premiums for motor insurance have risen by 8.2 per cent in the last year, in contrast household insurance premiums are 3.1 per cent lower than they were a year ago. Insurers may find future price increases difficult to achieve as 68 per cent of consumers surveyed by Deloitte said they are more likely to shop around for insurance than a year ago.
Mr Perkins said: “A significant amount of premium income could be at risk as consumers tighten their belts. Insurers will need to decide whether they are happy to cede volume, or become more competitive on price to protect market share. A better deal may be in store for consumers, particularly on non-compulsory purchases, if insurers become keener on price to mitigate loss of volume.
“What is clear from our survey is that insurers will be under pressure not to increase premium levels if they wish to maintain their market share.”
On a more positive note for insurers, 28 per cent of those surveyed in the Midlands said they are less likely to make an insurance claim for a small amount than a year ago because they don’t want their premium to go up.