The cost-of-living squeeze and energy bill increases are driving a surge in people borrowing more to fund insurance policies, new research from Premium Credit shows.
Its study found that two out of five (40%) of customers who use some form of credit to pay for one or more insurance policy – some 12.6 million people – borrowed more than they had in the previous 12 months for this purpose.
That is an increase on the 34% who said they had borrowed more in the previous 12 months when Premium Credit’s Insurance Index last reported in May this year.
Adam Morghem, Premium Credit’s strategy, marketing and communications director, said: “Rising interest rates, the cost-of-living squeeze and eye-watering energy bills are having a major impact on how people pay for insurance with rising numbers borrowing more to ensure they keep important cover, but not always considering the most efficient payment options available to them.”
Around 35% of respondents to the research stated that they had increased borrowing because their spending in general has increased while nearly one in four (23%) blamed rising energy bills for needing to borrow more.
When Premium Credit’s Insurance Index last reported in Mayaround 27% blamed increases in the cost of cover for their need to borrow more but just 11% said the same this time.
Around one in eight (13%) who have borrowed more to pay for credit in the past 12 months say they have taken out an extra £500 or more in credit, and more than 10% say they have borrowed £1,000 or more to fund one or more insurance policies in the past year.
Around 6% who used credit to pay for one or more insurance policy said they had defaulted on repayments during the past year while 7% fear they will miss repayments in the year ahead.
The Insurance Index, which monitors insurance buying and how it is financed twice yearly, found credit cards remain the most popular form of borrowing with 34% using them compared with 29% relying on finance from their insurer and/or premium finance.
The research shows 15% of people have become more accepting of using credit to pay for insurance, – but there are issues in being accepted for credit. Around 8% had been rejected for credit cards in the past year while 6% were offered a higher rate than the one they applied for.
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 simpler.
Morghem added: “Our existing support for vulnerable customers is tried and tested, and we are reviewing what additional support is appropriate during this time of uncertainty.
“Premium finance is specifically designed for insurance buyers to help make important insurance policies affordable and improve cashflow.
“Premium finance has become a very cost-competitive means for consumers to buy insurance and better manage their finances.
“At a time when household finances are under pressure it can be a good alternative to other forms of credit.”
