By Martyn Mathews, senior director, personal and commercial Lines, LexisNexis Risk Solutions, Insurance, U.K. and Ireland

As we start 2022 and anticipate a further challenging year ahead for the U.K. economy, insurance providers will be keenly aware of the need to keep their products accessible and affordable to households facing rises in the cost of living, particularly where mandatory insurance such as car insurance  is concerned. Front of mind will also be the guidance issued by the FCA in 2021 on the fair treatment of vulnerable customers. This is all putting further pressure on firms like insurance providers to know more about their customers when providing products and services. 

At LexisNexis Risk Solutions, we believe that certain elements of policy history data could have the power to help in the understanding of potential vulnerability at the point of quote, particularly one characteristic of vulnerability which is financial resilience. Insurance providers have an opportunity to leverage these data elements to help identify customers who could be facing possible financial challenges impacting on their financial resilience like affordability, possibly as an outcome of the pandemic, so that this can then be identified when delivering products and services.

Under guidance issued in February 2021, to help ensure vulnerable consumers are treated fairly and achieve outcomes as good as other consumers, the FCA stated that protecting vulnerable consumers is more important than ever due to the impact of the pandemic. The FCA said it expects firms to provide their customers with a level of care that is appropriate given the characteristics of the customers themselves. 

Against this backdrop, the UK experienced the biggest economic contraction in over three centuries in 2020 and while the recovery has been stronger that forecasts suggested, wealth inequality has become worse and there have been warnings from the Resolution Foundation that household incomes are set to stagnate as a result of rising inflation, leaving many hardworking families to face a cost-of-living crunch. From record prices at fuel pumps to the rise in energy costs, household finances are facing multiple pressures.

Identifying those customers who could be classed as financially vulnerable has therefore become a priority for the insurance market, particularly amongst motor insurance providers given how essential the car may be for many families in more rural areas; those not comfortable to travel on public transport and key workers who rely on their car to get them where they need to be, day or night. 

The potential clues to financial vulnerability have already been seen in the number of vehicles declared as SORN (Statutory Off Road Notifications) – March 2020 saw the highest number of SORNs made of any month in the past decade. 

Changes to the way people pay for their motor and home insurance cover are also strong indicators of possible financial pressure. A report from Premium Credit revealed that since the pandemic began, 10% of people with car insurance have switched to paying monthly, potentially to help spread the cost. Of those individual customers who use forms of credit to fund some or all of their insurance cover, 64% borrowed more in total over the past 12 months than in the previous year. Most striking is that nearly one in ten (9%) of people who use credit to pay for insurance have then sold their cars over the past year, potentially because they could not afford the total cost of all their insurance cover.

Traditionally, insurance providers have often relied on public records information to identify potentially financially vulnerable customers and where premium credit is offered, the use of private credit data to help determine affordability. However, together with access to policy history data gathered from over 87% of the motor insurance market, this combination could offer insurance providers a deeper perspective.

Motor policy history data is already helping insurance providers to put a change in policy behaviour, such as a cancellation during one of the U.K.’s three national lockdowns, into context to help deliver fairer and more accurate pricing for new business and renewals. Understanding that a cancellation or gap in cover was ‘pandemic-induced’ is hugely valuable to the motor insurance market – not just from a pricing perspective but from a customer experience perspective. This same policy history data on cancellations and gaps in cover may also provide a fresh way to help identify customers who might struggle to afford their motor insurance when they renew or apply for a new policy.

Knowing, for example that a customer cancelled their motor insurance in the third versus the first lockdown, might suggest increased financial strain over the pandemic period, culminating in the decision to sell their car. This creates a broader view of the individual’s needs.

With a better understanding of lockdown-led decisions by policyholders within the quote process, insurance providers can quickly identify those individuals who may need appropriate support in line with the guidance, through awareness of the right cover, pricing and availability of premium payment options for their individual circumstances. As well as helping insurance providers meet the recommended guidance issued by the FCA, the insights offered through policy history data could play an important part in keeping potentially financially vulnerable customers insured and, on the road, in the way they can afford.