Premium finance firm Premium Credit has carried out new research revealing that insurance customers are borrowing more to afford vital cover as the COVID-19 crisis squeezes household finances. The firm’s insurance index found that, over the last year, 16% of people have borrowed more to help pay for insurance cover, compared to 6% who have taken on less credit or the same amount.
On average, those using credit have borrowed £598 extra over the past year to pay for their insurance needs, Premium Credit noted, while some customers have been unable to afford to continue with insurance. Almost one in 10 of those surveyed (9%) of those who borrow to fund insurance have had to sell their cars, almost three times more than when the same question was asked in March 2020.
Five per cent (5%) of those who use credit to buy cover have cancelled or amended buildings insurance because they are unable to afford the total cost of their insurance, which compares to 6% previously, while 7% have cancelled or amended contents insurance compared with 9% previously. The index found that a major driver for the increase in borrowing was the impact of the COVID-19 crisis, and 19% of those surveyed stated they had borrowed more because they were furloughed.
“But it is not the only reason for the increased borrowing,” the firm noted, “nearly a fifth (19%) of those who have borrowed more this year to help pay for their insurance say it is because their total insurance premiums have increased while 21% say credit is so cheap it makes sense to borrow money to fund insurance.
“That is partly reflected in how customers are borrowing the money to pay for insurance – around 45% relying on credit to help buy their insurance are using credit cards, while 43% say they are using finance from their insurer and/or premium finance. Some 11% are borrowing money from friends and family, and nearly one in twenty (4%) admit to taking out high-interest loans.”
The advice from Premium Credit is for customers to consider premium finance which, for a small charge, will allow them to pay monthly for cover instead of in a lump sum – helping to ease cash flow challenges and make paying for vital insurance simpler.
Commenting on the research, Adam Morghem, Premium Credit’s strategy & brand director highlighted that being able to spread the cost of an annual policy into more manageable monthly payments works for many consumers and businesses.
Owen Thomas (pictured), chief sales & marketing officer at Premium Credit, added: “Premium finance has become a very cost-competitive means for consumers to buy insurance and better manage their finances through spreading payments. At a time when insurance is becoming more expensive, it can be a good alternative to other forms of credit.”
“Premium finance is a crucial enabler,” said Ian Hughes, CEO of Consumer Intelligence, “especially in this environment as we come out of lockdown, it allows people to get the vital protection they need if they can’t afford an upfront payment. The continued demand for premium finance shows that this is a crucial part of the service that insurers provide to consumers.”
Around 13% of those questioned in Premium Credit’s research noted they have found it more difficult to secure credit since the COVID-19 crisis began, with 15% saying they have been rejected for a credit card. However, the crisis has not been financially bad for all, with around 35% of respondents noting that their savings had increased as a result.