Food or car insurance? Tough choices for low income households as costs spiral

Lower income households in the UK are having to choose between buying food or paying the ever-spiralling cost of car insurance, parliament was told yesterday.

Giving evidence to the Treasury Select Committee inquiry into the rising costs, competitiveness and conduct of the insurance industry, the principal policy manager for Citizens Advice (CA) David Mendes de Costa told MPs:

“The people that are coming to us are having to make impossible choices of whether to pay for their car insurance or put food on the table – we’ve had several clients come to us that are having to make food bank referrals because of the rising cost of insurance.” 

According to Mendes de Costa, half of CA advisers had seen people having to cancel their insurance policies due to rising premiums, up from just 5 per cent in 2002. 

He also highlighted that those on lower incomes tend to be charged more for car insurance, and the same goes for people of colour who, according to CA, are charged £250 more on average than white people for their premiums. 

Mendes de Costa added that this is not a case of direct discrimination, given it’s typically postcodes and other similar factors that are used to determine risk. However, he reaffirmed that “there is no clarity as to what’s driving [higher prices] – what risk factors are applied to postcodes, or what cost factors”.

“It’s for the FCA to ask insurers to collect that data – and until they do that, we can’t move the conversation forward.”

Last week the UK car insurance industry was blasted as “greedy”, with data showing that premium rises in mainland Europe have been significantly less than here in the UK. Industry trade body the Association of British Insurers blames this on the increasing costs of repairs and maintenance, claiming that in the final quarter of 2023, £1.11 was paid out on claims for every £1 taken in premiums.

Office of National Statistics data shows that insurance prices across all sectors have, on average, risen by 17 per cent in the past year, with Citizens Advice (CA) joining a growling list of voices calling for action from the Financial Conduct Authority.

Despite the many calls for a response to rising prices, the FCA said last month that it would not conduct a full market inquiry, instead promising only to “assess the state of the market” this year. In a previous statement, the regulator said: “While we do not set or control insurance prices, we are monitoring the motor insurance market closely to ensure customers are receiving fair value.”

Have you seen an increase in your car insurance? Let us know in the comments...