Research: Insurance customers increasingly using credit to fund cover
Premium Credit’s Insurance Index shows 71% of adults use some form of credit to pay for one or more type of policies
More car and home insurance customers are opting to pay monthly to make cover more affordable
Insurance customers are increasingly using credit to pay for cover and switching to monthly payments for car and home insurance to manage their bills as the cost of living squeeze continues, new research1 from the UK’s leading premium finance company, Premium Credit, shows.
Premium Credit’s Insurance Index1, now in its fifth year, found that 71% of insurance customers use some form of credit to pay for one or more policies compared with 70% in March2 last year and 66% in March 20223 .
Data from the index shows more than one in seven (15%) motorists have switched to monthly payments for insurance from previously paying in a lump sum since the cost of living crisis started. That is nearly double the 8% who have switched from monthly payments to one-off lump sums over the same period. Around 11% of home insurance customers have switched to monthly payments from lump sums compared with 7% ditching monthly payments for lump sums.
More than a third (35%) customers who use some form of credit to pay for one or more insurance policies borrowed more than they had in the previous 12 months for this purpose. Around half (48%) say they have not borrowed more while 3% say they have borrowed less and 14% didn’t know or preferred not to say.
That is slightly down on the 38% who said they borrowed more in last year’s index but similar to the 34% borrowing more as reported by the index in March 2022. This year’s index shows customers estimate they borrow an average £302 to pay for insurance.
The main reason for increasing borrowing identified by the research among those who use credit to buy insurance was the ongoing cost of living squeeze. Around 32% said they borrowed more to ease financial pressures while 24% said their premiums had increased and 20% pointed to rising energy bills as a cause.
Around 6% who used credit to pay for one or more insurance policy said they had defaulted on repayments during the past year which is unchanged from last year and slightly up on the 5% who said they had defaulted in 2022.
Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed, found credit cards are the most popular form of borrowing despite the potentially high cost. Around 35% rely on credit cards while 25% use the finance offered by their insurer and/or premium finance provider.
Use of personal loans and borrowing from family and friends continued to decline to 6% and 5% respectively. That compares to 8% and 6% last year and 9% and 7% in the 2022 index. Around 3% relied on high interest loans compared with 4% last year.
Premium Credit is advising customers to consider premium finance which, for a small charge, enables them to pay monthly for cover instead of in a lump sum. Spreading payments in such a way can help ease cash flow challenges and make paying for vital insurance more convenient. The Financial Conduct Authority’s Head of Insurance Matt Brewis has said it is an essential product.
The index shows widespread use of credit by consumers to pay for all types of insurance monitored as the table below shows. The biggest rise was in travel insurance followed by car insurance.
Adam Morghem, Premium Credit’s Strategy, Marketing & Communications Director said: “The numbers of people using credit to pay for insurance continues to rise with notable switches in the number of people paying monthly for car and home insurance instead of in a lump sum as before.
“Monthly is how many of us manage budget, from how we are paid to the bills we pay. Premium finance is specifically designed for personal and commercial insurance buyers to help smooth out the lumpiness of a single charge and improve cashflow. Spreading the cost of an annual policy into more convenient monthly payments works for many millions of UK consumers and businesses.
“It is also a-competitive product for consumers to buy insurance and can be a good alternative to other forms of credit like credit cards or bank overdrafts.”
Premium Credit’s research highlighted the cost of not having the right insurance – around 9% of those who use credit to pay for insurance have not been able to make claims in the past five years either because they had no cover or had inadequate cover. Around 61% were unable to claim for damage of £1,000 or more.
Authored by Premium Credit
