Which? reports on FCA findings that millions cancelled insurance policies during the cost of living crisis

More than three million customers cancelled at least one general insurance or protection policy to save money during the cost of living crisis in the second half of 2022, according to Financial Conduct Authority (FCA) Financial Lives survey data reported by Which? on 7 August 2023¹.

The survey was conducted in May 2022 and again in January 2023. When respondents were asked in January whether they had cancelled a policy, reduced cover or changed to a cheaper policy to save money because of the rising cost of living in the previous six months, 3.6 million people said they had¹. A further 3.1 million people reduced their level of cover on at least one policy rather than cancelling¹.

The FCA survey found 37.1 million people had seen their financial situation worsen in the six months to January 2023, while 36.9 million either had no disposable income or had seen their disposable income decrease¹.

Which policies were cut

The most commonly cancelled policies covered smaller items. Of those who cancelled, 27% ended mobile phone insurance and 21% ended gadget cover. A quarter, 25%, cancelled pet insurance, and nearly 23% cancelled life insurance. Fewer cancelled car insurance (11%) or buildings insurance (8%)¹.

Among those who reduced cover rather than cancelling, car insurance (39%) and home contents and buildings insurance (31%) were the most common targets¹.

Why it matters for households

The figures cover the six months to January 2023 and describe decisions already taken, not a change in the rules. What households face is the consequence of those decisions.

Some cover is a condition of something else. Which? notes that mortgage holders will usually have had to take out buildings insurance as a condition of the loan, with the exception of flats where the building is covered through a service charge, or rented homes where the landlord insures the building¹. Car insurance is a legal requirement to drive, though the level of cover is a choice: third-party is the legal minimum and covers damage to other people, their vehicles and property; third-party fire and theft adds protection if the car is stolen or damaged by fire; fully comprehensive adds damage to the policyholder's own vehicle in an accident¹.

Contents insurance is not compulsory but covers possessions for theft or accidental damage, and a standard policy usually includes electronic devices such as mobile phones and laptops¹. On life insurance, Which? sets out two main types: fixed term pays out only if the holder dies during the term, while whole of life pays out whenever death occurs provided premiums have been kept up, and is more expensive¹.

The practical effect of cancelling or trimming cover is that a loss, theft or damage event that would have been paid for becomes a cost the household meets itself. How premiums are calculated, including Insurance Premium Tax, and how excess, cover limits and exclusions work, determine what a policy would have paid.

What happens next

No further FCA survey wave or publication date is given in the report. The findings described are those of the Financial Lives survey conducted in May 2022 and January 2023¹.