Motor and home customers increasingly rely on credit for cover

72% use credit to pay for insurance compared with 61% a year ago with big rises in the numbers borrowing to fund motor and home cover

Premium Credit’s Insurance Index shows nearly two out of five are borrowing more than a year ago

The number of insurance customers using credit to pay for one or more policies has soared in the past year as a combination of the cost-of-living squeeze, energy bills and premium rises turns up the pressure on budgets, new research1 from the UK’s leading premium finance company, Premium Credit, shows.

Its study found 72% of customers use some form of credit to fund cover compared with 61% a year ago with the biggest increases recorded for customers buying motor and home policies. Nearly half (49%) use credit for home insurance compared with 40% a year ago while 48% pay for motor insurance with credit compared with 40% last year.

However Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed twice yearly, saw increases in the use of credit for all categories of insurance it covers including life, pet, health, travel, critical illness and specialist insurance.

Around two out of five (38%) customers who use some form of credit to pay for one or more insurance policy borrowed more than they had in the previous 12 months, the research found. However, 42% said they had not borrowed more while 3% said they had cut borrowing. The other 17% either did not know if they had borrowed more or preferred not to say.

The ongoing cost-of-living squeeze was highlighted as the biggest reason for increased borrowing with 32% citing it while 18% blamed the impact of energy bills and 18% said premiums had increased. The most recent Confused.com Car Insurance Index said premiums have increased 40% in a year.

The table below shows how widespread use of credit by consumers to pay for insurance is and how it has increased in the past year.

Around 10% 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.  Around one in 20 (5%) who use credit to pay for insurance say they have sold their car in the past year because they cannot afford cover while 8% have taken on extra jobs to pay for insurance.

Around 5% who use credit to pay for one or more insurance policies said they had defaulted on repayments during the past year and 7% fear they will miss repayments in the year ahead. That compares to 6% and 7% respectively in Premium Credit’s study last year.

Premium Credit’s Insurance Index found credit cards remain the most popular form of borrowing with 36% using them compared with 27% relying on finance from their insurer and/or premium finance. That compares to 34% and 29% last year.

However, the research shows there are issues with being accepted for credit – 6% were rejected for credit cards in the past year while 5% were offered a 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.

Adam Morghem, Premium Credit’s Strategy, Marketing & Communications Director said: “There has been a sharp rise in the number of people turning to credit to pay for one or; more insurance policies as the cost-of-living pressures continue to tighten budgets.

“The increases have been particularly notable in car and home insurance but the rises are across the board underlining not only the importance of credit in the insurance market but also the need to find the most efficient payment options available.

“Premium finance is specifically designed for insurance buyers to conveniently spread the cost of insurance policies. Premium finance is 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.”

Premium Credit’s research highlighted the cost of not having the right insurance – around 11% of people have not been able to make claims in the past five years either because they had no cover or had inadequate cover. Around a third (33%) missed out on claims worth £3,000 or more.

Authored by Premium Credit