Insurance cuts could cost industry £1bn in lost premiums

Cuts in insurance spending by consumers have not been as severe as anticipated 12 months ago according to research conducted by YouGov for business advisory firm Deloitte.

Despite the current economic climate, just 13 per cent of consumers said they have cut back on insurance products in the last year in order to save money. However, 17 per cent said they would consider cutting back on insurance at the next renewal, which Deloitte predicts could cost the industry up to £1 billion in lost premiums.

Regionally, in the Midlands and Wales 13 per cent of those surveyed said they have reduced the number of insurance premiums taken out in the past 12 months, with 22 per cent considering cutting back when the policies are next up for renewal.

According to the research, the policies most likely to be affected in the future are motor insurance, with consumers opting for less comprehensive cover (14 per cent), travel insurance and household contents insurance. The areas most affected by cut backs over the past 12 months were pet insurance (15 per cent), payment protection (15 per cent), health insurance (13 per cent), travel insurance (nine per cent) and motor insurance (two per cent). Contents insurance (nine per cent) and household insurance (five per cent) were the least affected areas.

Matt Perkins, partner and head of financial services in the Midlands at Deloitte, said: “These results show that while consumers are still feeling the pressure of the recession, it is evident that the financial crisis has had a smaller impact on consumer spending on insurance than was anticipated 12 months ago. Interestingly, some consumers seem to be reducing their home and contents insurance, which is surprising given that crime and theft levels typically increase during recessions.

“Once the recession is over insurers might be wise to think about their tactics to regain the business lost, which could amount to as much as £1billion across the market for products such as motor, home, pet, travel and private medical insurance.”

The recession has had one big impact on the insurance market. According to the YouGov research 46 per cent of consumers in the Midlands and Wales are more likely to shop around for the cheapest insurance cover.

The research also found that when it comes to making an insurance claim honesty is the best policy for consumers in the region.

More than half (65 per cent) said they were very unlikely to consider inflating a claim, with just one per cent saying they were very likely to and three per cent saying that they were fairly likely to. Sixty-five per cent viewed the practice of inflating claims as illegal and constituting fraud, with one per cent finding it acceptable in the current climate.

Mr Perkins said: “Insurance fraud typically thrives in a downturn, and it has been estimated that fraud adds an extra £40 a year to the average insurance premium . Despite recent reports that fraudulent claims are on the rise, it is encouraging to see that there has been a reduction in the number of consumers who think it is acceptable to inflate their claims. This may indicate that education of consumers is working given that an increased percentage of consumers consider it illegal which is a positive for the industry.

“Nevertheless, with seven per cent of consumers still saying that it is likely that they would consider inflating their claims, this remains a major concern for insurers.”

– ENDS –

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