Motor insurance is essential for work, education, and daily life, but for millions on low incomes, it has become unaffordable. The Motor Insurance Taskforce’s final report is welcome recognition that we need action across government, industry and regulators to get a grip on the factors that are driving up the cost of car insurance.

The Financial Conduct Authority’s (FCA) data exercises delivered as part of this Taskforce, into claims data and the ethnicity premium, are hugely valuable and provide a much-needed level of transparency. They demonstrate that it is possible to collect data from car insurers in a manner that enables the regulator to investigate whether the sector’s approach to pricing is fair. We understand the focus on actuarial fairness and the value of linking premiums to risk. In our recent policy paper, we discuss how this insight can be used by insurers and others to both incentivise safe driving and to inform many of the actions included in this final report i.e. where to target efforts to reduce car thefts and improve road safety via schemes like net-zero.

However, actuarial fairness is only one side of the coin. The ethnicity premium report shows that racially minoritised people pay more for their car insurance because of factors such as living in urban areas with higher population density. Whilst the findings show that insurers are not explicitly discriminating against these groups, it shows that the outcome of insurers’ pricing models is discriminatory. These types of systemic discriminatory outcomes entrench inequalities.

As part of their analysis into the ethnicity premium the FCA used Indices of Multiple Deprivation (IMD). Yet the FCA missed this opportunity to consider the impact of just deprivation on car insurance premiums, despite car insurance having the costliest poverty premium in Great Britain.

It is also disappointing that the report is dismissive of the voices of consumer groups. It quickly concludes, but does not substantiate, that “the consequences of direct interventions in pricing are often hard to predict and may damage what is otherwise a competitive and well-functioning market, and the government has no plans to take these proposals forward at this time”.

This means that low-income households will continue to face the highest charges for car insurance. This is doubly disappointing as the recently published Financial Inclusion Strategy justifies not addressing car insurance because of the ongoing work of this Taskforce, which has gone on to completely disregard financial inclusion in its work.

Why this matters

Car insurance is not a luxury. It enables people to access employment, education and be active members of society. From a societal perspective it is not fair that low-income households pay more to insure their vehicles, especially as the FCA’s own analysis shows people pay more for insurance due to risks outside their control:

“More complex and expensive cars, supply chain delays, a shortage of skilled labour, increased costs for replacement vehicles, rising bodily injury costs, increasing numbers of car thefts and a rise in costs associated with uninsured drivers have all contributed to rising claims costs.”

Our analysis shows that these factors, coupled with paying in monthly instalments (Premium Finance), adds around £400 extra per year to the cost of car insurance for those on low incomes. This is not just a financial issue; it is a question of fairness and inclusion.

Our recent survey of low-income consumers reinforces this reality:

  • Half of non-car owners said the cost of insurance prevented them from owning a car, even though they wanted or needed one.
  • A quarter of car owners have had to cut back on essentials to afford insurance.
  • Most respondents believe it is unfair that paying monthly costs more, and they want to see targeted discounts for low-income households.
  • Penalising people for being on a low income or living in high-risk areas was considered the most unjust risk factor.

“We need to go back to first principles and ask ourselves what insurance is for. Why does it have to cost more for people who don’t have a lot of money?” – Val, Fair By Design Lived Experience Panel

So what now?

  • Prioritise low-Income households: The actions set out in the Taskforce’s final report should be targeted first and foremost towards areas with high levels of deprivation where motorists in low-income households face the highest risks and costs.
  • Transparency and accountability: The FCA should both build on its analysis to review the poverty premium and repeat this data collection exercise to evaluate the effectiveness of this action plan and ensure accountability.
  • Action on Premium Finance: The FCA already has the tools to address excessive charges for paying monthly, which it labelled a poverty premium over a year ago. It must act now.
  • Discount schemes for essential cover: The Taskforce’s report very quickly dismisses targeted discounts for low-income households in high-risk areas, but we disagree with this conclusion. It can be done in a way that maintains risk reflective pricing, whilst making car insurance more affordable.

By Rebecca Deegan, Director, Fair By Design.