Ghosts of hollowed out policies come back to haunt insurers

Next year, the Financial Ombudsman Service expects to receive complaints from consumers who opted for cheaper car premiums without realising the impact this would have on the type or level of cover provided.

Sadly, I know that some Grinch-like figures will have just read that sentence and declared: “Boo hoo! Buyers should beware. They should read the small print.”

When it comes to small print, we all know every insurer explains in painstaking depth what is and isn’t covered by a policy in the reams of pages they send out once motor insurance is purchased. 

What I don’t want to see is insurers looking at the short-term benefits of saving someone some money that then leads to a reputational crisis.

Jonathon Valentine, ThingCo

However, I urge anyone who thinks they can hide behind that argument, and point out they followed the letter of regulation on disclosing what is covered, to ready themselves for a reckoning of Charles Dickens’s Christmas Carol-like proportions in 2024.

Jonathon Valentine, chief information officer of ThingCo, acted as the industry’s Ghost of Christmas Present when he spoke to senior reporter Tom Luckham earlier this month and warned against the “short-term benefits” of stripped-back insurance. 

He said: “What I don’t want to see is insurers looking at the short-term benefits of saving someone some money that then leads to a reputational crisis.”

Valentine argues that consumers could be poorly served by taking out policies while not understanding what they are and aren’t covered against, further harming the “awful reputation” of the insurance industry.

He continued: “We have a duty to consumers to understand that a lot of them don’t understand car insurance. To combat that, we either make it simpler or don’t make products that cause friction at a later date.”

Valentine is spot on – that duty is the Consumer Duty, and is a regulatory requirement, which should mean the ombudsman’s expectation of complaints about pared down cover should have struck fear into some providers’ hearts this Christmas.

If you intend to argue policyholders who didn’t know an essential or three-star product didn’t necessarily cover all the basics you’d expected only have themselves to blame for their misfortune, then you should expect the ombudsman and regulator to come knocking like the Ghost of Christmas Past next year.

Broken biscuits

Before I am accused of bashing basic motor insurance, let me be clear: it is laudable to want to help individuals struggling during a cost-of-living crisis with affordable premiums.

All drivers are different, and what are non-negotiable features to some will be irrelevant and others will feel they are therefore not worth paying for.

But I am worried about whether some basic products have been stripped back to less than the bare minimum cash-strapped motorists require.

Last year Which found several well-known motor insurer’s offered essentials cover that lacked common features such as new car replacement, putting the wrong petrol in or losing your keys.

The lack of a courtesy car isn’t an issue if your other half can lend you their motor to meet your needs in the short-term, but it is catastrophic if you are a single parent who needs to get their children to school or earn cash doing deliveries.

Upping your excess, which many of these essential policies do, isn’t an issue so long as you have a savings pot you can dip into.

Increased excess can be devastating if the cash you have coming into your account already isn’t enough to cover your heating and eating.

Insurance is essentially a promise, and for consumers to trust the strength of the safety net the industry is providing, then it is never OK for policyholders only to realise at the claims stage they weren’t covered for what they needed.

That route leads to photos in personal finance papers of sobbing policyholders, looking like the Cratchits, and providers being painted by the likes of BBC’s Rip Off Britain programme as some Ebeneezer Scrooge-like character shouting “Bah Humbug”. 

Repent now

To avoid these Ghosts of Christmas Future, take a long hard look at the checks you make today on whether consumers understand the scope of cover and how you are marketing essential products.

The word “essential” conjures up images of supermarket chains' cheaper own-brand alternatives, and to use biscuits as an analogy, suggests the consumer will get the same great-tasting baked treat, just in a less fancy box and containing cheaper flour, sugar, with a thinner coating of chocolate.

If essential motor products are delivering just a slightly higher excess and covering the basics that consumers expect, such as a replacement for the growing number of chipped windscreens caused by our rubble-like roads, then you can sleep easy this Christmas.

But if you start to realise your policies are closer to a box of broken biscuits that you can’t serve to friends, family and neighbours who come calling this Christmas, then repent now and realise your marketing and signposting is wrong and work to fix it.

I fear far too many of these products are more like broken biscuits than own brand alternatives, which means action is needed now to avoid the industry’s reputation taking a painful body blow in 2024.