Vulnerable insurance clients in ‘lose-lose’ situation, report warns

Low-income and vulnerable insurance customers find themselves in a “lose-lose situation” when it comes to purchasing insurance, according to a report.

Co-published by the Institute and the Faculty of Actuaries and the Fair By Design steering group, the report states that these clients faced some degree of market failure but were “unable to sufficiently prove a failure of the market. market to government and regulators, and unable to take legal action. “

Due to insurers’ risk-based pricing – a process that is becoming increasingly individualized – the report argued that low-income and vulnerable consumers continue to face higher premiums, or are denied outright. insurance, because of the greater risks they pose.

The report highlighted concerns shared by consumer advocates over insurers potentially “in violation” of the Equality Act, passed over 10 years ago.

But finding the data to prove this “violation” to government and regulators is tricky, he said.

“Consumer advocates have said they are often not able to get enough information from insurers on how valuations are done or the data sources used,” the report said. “They demanded that this lack of transparency be examined. “

Through a 2019 Treasury Select Committee investigation, the Financial Conduct Authority found that several insurance companies were unable to provide immediate answers on the algorithms that underpin their pricing, how they compile ratings. data and whether each data complied with the law on equality.

The financial watchdog has since announced its customer duty principle, which is expected to come into effect next year. It is designed to ensure that financial services products in all areas provide fair value, which results in a fair relationship between the price paid by the customer and the quality of the benefits and services he receives.

But without a clear view of the data insurers use to price their products, consumers will have a hard time proving whether that relationship is fair or not, according to the report.

“Consumers and their advocates have signaled that they cannot assess whether a high or unaffordable premium, or an insurer’s decision not to offer coverage at all, is reasonable or fair,” he said. .

“They think this leaves them in a lose-lose situation – unable to sufficiently prove market failure to the government and regulators, and unable to take legal action.”

The report called for a number of changes in the industry. We would see the end of the monthly premiums paid by people who cannot afford to buy an insurance product in a single payment.

Another proposed that the UK government facilitate the provision of a “minimum level of protection” through the use of social policy interventions with the aim of removing what he called the “poverty premium” from the sector. insurance.

A problem before the pandemic, the ‘poverty premium’ is only expected to widen after the pandemic according to the report, as the government leave scheme ends and the UK inflation rate continues to rise. situate above the bank’s target.


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