The cost-of-living crisis is already resulting in a significant number of consumers changing the way they manage their money.
A social media poll of 723 financial planners and insurance professionals in June revealed, as the Bank of England warned inflation might reach 10% within months, putting pressure on household budgets, consumers are shopping around for cheaper protection policies.
The survey showed around two out of five Chartered Insurance Institute members have seen a significant increase in the volume of consumers shopping around for the cheapest policy premium as wage packets failed to keep pace with inflation. This is particularly concerning when it comes to cover such as property insurance, where galloping inflation in the construction market that consumers and SMEs should be asking themselves whether they should be increasing their coverage for rebuilding costs.
One in five insurance professionals reported consumers reducing the amount of cover they purchase to try to reduce their costs, and 18% stated a growing number of policies were being allowed to lapse, meaning a growing number of consumers no longer have the financial safety net of an insurance policy.
Many consumers have never seen costs increase at this speed and it is clearly resulting in a great deal of anxiety and fear.
The insurance profession has a vital role as talk of recession mounts to show care for consumers whose fear of inflation may result in them ditching the safety net provided by cover.
With such a significant reduction in disposable income, and the Financial Conduct Authority set to publish final rules and requirements for a Consumer Duty this summer, insurance brokers should be acting now to empower consumers to ensure their finances are in the best shape possible.
Insurance brokers should engage in conversations about the value provided by cover, welcome the consumer challenging whether the cost is too great, and be prepared to talk through what the implications might be of reducing the premium price or cancelling a policy altogether.
Because when the going gets tough, what consumers need - and the regulator is making a duty - is for insurance brokers to come together to make sure this is a profession people turn to for essential support rather than shun as a non-essential cost they can cancel.
Increasing debt levels or cutting back on insurance cover today could cause consumers more serious problems in the future and compromise their future financial resilience. It is insurance brokers’ duty to educate consumers considering cancelling, reducing their cover or going for the cheapest policy about the long-term implications of such an approach.
The regulator has stated with the Consumer Duty it wants to drive a healthy and successful financial services system in which firms can thrive and consumers can make informed choices about financial products and services.
The regulator sees a range of good practice by firms in retail sectors with firms innovating to meet consumer needs, but the watchdog noted their staff also see that firms are not consistently and sufficiently prioritising good consumer outcomes stating: “This causes consumer harm and erodes consumer trust.”
Ultimately, insurance brokers hold the key to the insurance sector as a whole complying successfully with the Consumer Duty.
Brokers have the expertise and skills to give clients the in-depth and personalised advice they need to find cover that will meet their needs.
Only brokers can communicate with clients in a tailored and meaningful way to ensure they truly understand what they have bought.
As daunting as the Consumer Duty and the cost-of-living crisis may be, this could be the moment when the value offered by expert advisers becomes clear to all.
