Consumer insurance customers are borrowing more to cover their premiums as cost of living pressures continue to bite, new research1 from the UK’s leading premium finance company, Premium Credit, shows.
Premium Credit’s Insurance Index, now in its seventh year, found customers using credit to pay for insurance estimate they borrow an average £505 compared with £400 in last year’s index and £302 two years ago.
The index found 76% of insurance customers use some form of credit to pay for one or more policies – unchanged on last year’s index, but up on the 71% two years ago and 70% in March 2023.
The index, which monitors insurance buying and how it is financed, shows ongoing cost of living challenges are the main reason driving increased borrowing. More than half (53%) who borrowed more blamed the rising cost of living – double the 26% who pointed to insurance premium increases. Last year’s index showed 43% highlighted cost of living and 24% pointed to premium increases.
However nearly a quarter (23%) said they took on more credit as it is a more convenient way to pay for insurance and improves their money management.
More than half (51%) who use some form of credit to pay for one or more insurance policies borrowed more than they had in the previous 12 months, compared with 43% in last year’s index. Nearly two out of five (39%) said they have not borrowed more, slightly down on the 42% last year, while just 2% said they had borrowed less and 7% (11%) did not know or preferred not to say.
Premium Credit’s Insurance Index found credit cards remain the most popular form of borrowing despite the potentially high cost. Around 55% rely on credit cards compared to 41% last year.
Relying on credit cards and other forms of unsecured borrowing is potentially risky, the index shows, with 11% who used credit to pay for one or more insurance policy saying they had defaulted on repayments during the past year. That was nearly double the 6% in last year’s index. Around one in eight (12%) questioned said they had been turned down for credit cards in the past two years.
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 index shows widespread use of credit by consumers to pay for all types of insurance monitored as the table below shows. It is most used to pay for car and home insurance.
Mona Patel, consumer spokesperson, at Premium Credit said: “Insurance customers are borrowing more to cover their insurance payments due to cost of living pressures rather than insurance premium increases. However, it is notable that substantial numbers who are borrowing more are doing so because paying for insurance monthly is more convenient and better for their general budgeting in line with how they pay for other products and services.
“Premium finance is specifically designed to help smooth out the impact of a single lump sum and improve cash flow. Spreading the cost of an annual policy into more convenient monthly payments works for many millions of UK consumers and businesses and it can be a good alternative to other forms of credit like credit cards or bank overdrafts.”
Premium Credit’s research found nearly a third (32%) expect their financial situation will worsen over the next 12 months compared with 19% who expect it will improve and 38% who believe it will be unchanged. Around 11% did not know or would not say.
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