18 May, 2023
Shining a light on the poverty premium in insurance
Housing and Homelessness Programme / Partner story / Video
Do you know what the poverty premium is? This is when people on low incomes pay a higher price for insurance cover due to reasons that they cannot control, such as where they can afford to live. It is estimated that around 14 million people in the UK are paying extra costs for energy, loans, and insurance. Auto insurance, for example, can be up to GBP 300 more expensive for people on low incomes than better-off drivers, simply because of the postcode of their residence.
The Social Market Foundation (SMF) is a UK-based not-for-profit organisation that is carrying out research on the higher insurance costs that people living in poverty often have to pay. Its work is supported by Fair By Design, a not-for-profit organisation that is working to end the poverty premium.
Key findings from SMF’s report Insurance and the poverty premium includes: 1) insurance is seen as essential by people in poverty; 2) two thirds (66 per cent) believe that it is unfair that those on lower incomes may pay more for their insurance; and 3) over half (55 per cent) find it difficult to pay for insurance costs. You can watch the brief explainer below, or otherwise, check out the online report launch.
Martin Coppack, director of Fair By Design, says that it is a difficult act weighing the cost and necessity of insurance. “Sometimes we have to have insurance, like motor insurance, which is a legal requirement,” he says, but “if you can’t afford to pay your insurance all in one go, you can end up paying well over another hundred pounds.”
More needs to be done to make insurance fairer for people in poverty, the report argues, and the task will be for the financial services regulator as much as insurance companies and government. “The insurance industry is providing an important product that supports the finances and peace of mind of millions of households,” says James Kirkup, director of SMF. “We hope the sector will rise to the challenge of addressing the poverty premium to ensure even more people can benefit from insurance.”
This grant falls under the Housing and Homelessness Programme, which believes in a society where more people live in decent homes and fewer people experience homelessness and housing insecurity. You can find out more about our programme here. You can also find out more about Social Market Foundation here and Fair By Design here.