Potential pitfalls for insurers and brokers highlighted in consumer survey

A financial products consumer survey, tracking the behaviours and attitudes of almost 18,000 people, has been published by the Financial Conduct Authority⁽¹⁾.

Financial Lives is a nationally representative survey of UK consumers carried out by the FCA every two to three years. It provides information about:

• consumers’ attitudes towards managing their money
• the financial products they have
• their experiences of engaging with financial services firms

Of those surveyed, more than 900 people went on to answer a series of questions regarding their home insurance (building and contents combined) policy, revealing some crucial insights for insurance providers and brokers to consider when working with rebuild cost values.

Rich MacLean, chief commercial officer at BCIS, said: ‘The findings of this survey reinforce how consumer behaviour and attitudes can inadvertently contribute to the process of arriving at an appropriate rebuild value breaking down.

‘Where an inaccurate or outdated valuation results in underinsurance and a complaint is lodged, providers will need to demonstrate that they have exercised due diligence.’

Understanding the details

Potential gaps in comprehension are explored in the survey.

Of the respondents who had renewed, taken out or switched policies in the last three years, more than one-third (38%) said they either couldn’t recall or didn’t know if they recalled receiving an Insurance Product Information Document prior to taking out the policy.

Of those who did recall receiving the document, 18% said they didn’t find it useful and 10% didn’t know if they had found it useful.

After taking out their policy, just one-quarter of respondents said they had read the policy documentation carefully, 39% said they looked through it briefly, and almost one-third (31%) said they had just looked at the key points. 4% hadn’t read the documentation at all.

MacLean said: ‘Even if the majority of policyholders are diligently checking their documentation and ensuring it covers everything they need it to, a significant minority still represents thousands of policies potentially being taken out without full understanding of what’s covered. When this includes self-declared rebuild values, the risk of underinsurance is exacerbated.’

Additionally, of the respondents who had held their policy with the same provider for up to 10 years, only around half (53%) said they had last reviewed policy to check it still met their needs within the last year. Others hadn’t reviewed it in over a year (13%: 1–2 years ago; 8%: 2–5 years ago; 8% didn’t know), and 16% hadn’t reviewed it since they took the policy out.

Pricing sensitivity

The survey highlights how price conscious policyholders are, a key risk where changes to a policy could increase premiums. When asked what prompted respondents to switch away from their previous provider in the last year, 90% said it was because the premium was too high.

MacLean said: ‘More than half (53%) of respondents (with a policy for up to three years) said they arranged their home insurance policy through a price comparison website, compared with 24% buying it directly from the provider, 6% through a bank or building society, and 6% through a broker.

‘It’s a curious phenomenon that what could potentially be a homeowner’s most significant financial product – the cost of being underinsured is potentially devastating – could in many cases be the result of someone looking for the cheapest product they can find.

‘This also appears to be supported by the fact that, of those who arranged their policy via a price comparison website, insurance broker or financial adviser in the last three years, 85% said they had paid the exact price initially quoted, while just 10% said they had paid more. Given the prevalence of underinsurance, it’s naïve to assume that most rebuild values provided are appropriate from the outset and that no adjustments are necessary.’

Risks associated with passive renewals

More than one-third of respondents (39%) reported being with the same provider for more than three years, while one in ten had been with the same provider for at least 10 years.

For those who had held their policy for at least one year, four in ten (41%) said the policy had renewed automatically, while less than half (48%) had given instructions to renew.

MacLean said: ‘The survey doesn’t tell us how many insurers are engaging policyholders in meaningful conversations about rebuild costs, but it does highlight just how easily a discussion about an appropriate valuation could be missed. With 41% of policies renewing automatically and over half of new policies arranged through price comparison websites, if these touchpoints become passive or transactional, the risk of underinsurance due to the use of outdated or inaccurate rebuild values remains high.’

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^{(1) FCA – Financial Lives 2024 survey – here}