Surging motor premiums drive insurers to introduce stripped-back and low-cost essentials cover

As car insurance premiums have surged by 67%¹ on average in the past year, insurers are rapidly introducing new “essentials” cover tiers to offer more affordable alternatives, according to analysis by Fairer Finance. The consumer group is urging insurers to ensure full transparency so consumers understand exactly what these stripped-back policies do and do not cover.

Among the largest 10 car insurers, 60% now offer ‘essentials’ policies, as the sector pivots towards more budget-friendly options. These policies typically provide more cover than basic third-party, fire, and theft policies, but omit many features found in standard car insurance policies. Common exclusions in ‘essentials’ policies include windscreen cover, stolen key replacement, courtesy cars, and the uninsured driver promise (a guarantee to reinstate no-claims discounts and reimburse excess if involved in an accident with an uninsured driver).

Admiral, Ageas, and Hastings have offered these policies for some time, but 2023 saw newcomers including Churchill, Sainsbury’s, and Geoffrey Insurance adding an "essentials" policy to their product list, as well as new insurers like Boom and Moja introducing them as an option.

James Daley, Managing Director at Fairer Finance, the consumer group and ratings provider, commented: “Many insurance brands that once had a single comprehensive car insurance policy, now can have three or four  different sub-brands all offering different tiers of cover. This brand stacking is designed to ensure they can keep their name at the top of the price comparison charts – but it makes  choosing the right policy all the more difficult for consumers. There’s no standard definition of an essentials policy, with some insurers stripping out windscreen cover, while others have raised excesses, or removed cover for lost or stolen keys.

“Since many customers will opt for essentials cover due to the lower price, it is vital for insurers and comparison sites to be clear about the exclusions and limitations of these policies. People need to understand these restrictions at the time of purchase rather than at the time of making a claim. Customer trust will only further erode if the industry doesn’t address this.”

The latest findings from the Fairer Finance Trust in Insurance Index in March revealed that consumer trust in car insurance experienced a notable decline in the last six months, coinciding with a significant increase in premiums. The index, derived from a comprehensive poll of 10,000 consumers, indicated a shift in sentiment, with dissatisfaction mounting as premium costs soar.

Daley continued: “This situation raises the question of whether there should be a minimum standard for comprehensive policies to prevent insurers from continually stripping features back to bring down the price. Transparency about even minor changes in coverage limits is essential to reduce the complexity of car insurance and prevent consumer misunderstandings.

“For instance, Swinton’s Essentials policy imposes a £150 limit on windscreen repair and replacement. Given the rising cost of glass, this makes it likely that customers will have to cover the excess and any additional costs out-of-pocket. By offering low coverage limits, insurers can reduce their payouts per claim while maintaining the 'comprehensive' label on their policies.”

For more information about Fairer Finance and to read more about its Customer Experience and Product Ratings, visit https://www.fairerfinance.com/.

ENDS

Notes to editors

¹According to Consumer Intelligence in January 2024, the average quoted price of car insurance rose by 67.2% in the year to November – the highest annual increase on record, the latest Consumer Intelligence Car Insurance Price Index shows. 

For further information, please contact:

Karen Mignon, KM Comms: karen@kmcomms.co.uk / +44 7766 651327

Louise Ahuja, KM Comms: louise@louisebcomms.co.uk/ +44 7788 676913

About Fairer Finance

Fairer Finance is an independent consumer group and ratings provider whose mission is to help create a financial services market that is fair for consumers as well as the companies that serve them. With a heritage spanning almost a decade, Fairer Finance’s unique and impartial Product Ratings are simply designed to help consumers make sense of the complex world of financial products. It rates over 6,000 products spanning over 20 sectors, ranging from bank accounts, credit cards, car insurance and travel insurance.

Its Customer Experience Ratings are designed to help consumers make more informed decisions based on quality and service and not just price (eg trust, complaint-handling, transparency etc).