Insurance and the poverty premium

Think tank: Social Market Foundation

Author(s): Matthew Oakley; James Kirkup

March 13, 2023

This report from UK think tank the Social Market Foundation looks at what drives the poverty premium in insurance.

This report from the Social Market Foundation think-tank presents new evidence and analysis on experiences of the poverty premium in insurance market. Insurance can provide a vital form of resilience in times of financial strain, and, for the most financially vulnerable, is arguably an essential good. But people in poverty regularly face a poverty premium in the insurance market. Not only is that unfair, it also leads to worse outcomes for people, families and society – and it risks trust in the market mechanism. In this report, we conceptualise drivers of the poverty premium and call on the government, the insurance industry, and regulators to establish policies that can protect people in poverty from paying more for coverage. Understanding the poverty premium – we need to resolve whether: (a) poorer policyholders are paying more for higher risks associated with their circumstances, i.e. the cash poverty premium at play OR (b) poorer policyholders are paying more, despite being of less or equal risk to richer counterparts, i.e. the value poverty premium at play. Stakeholders interviewed as part of this research agreed that understanding the balance between these two routes of the poverty premium is essential to better policy. We are calling on the FCA to urgently investigate the causes of the poverty premium, and for Government to take action on the findings and consider solutions.