New research conducted for Fair By Design by the University of Bristol Personal Finance Research Centre (PFRC) shows that low-income drivers can pay up to 48% more for car insurance in 2024, calling it ‘the car insurance poverty premium’.
Previous research has highlighted how car insurance is a key part of the poverty premium, with those living in more deprived areas often charged more a higher premium than those elsewhere. The new ‘Driving up Costs‘ briefing note includes analysis of over 1,000 insurance quotes, covering a range of different types of area. It finds that those living in the most deprived areas could pay as much as 29-48% extra on their car insurance premiums (equivalent to £234-314).
The research also found that the same driver, in the same car, could pay 15-20% more (equivalent to £131-156 for our case study) to get insured in a more deprived area, compared to the average area. Those living in more ethnically diverse areas were quoted premiums around 20% higher (or £180) than those in less ethnically diverse areas, even if only obtaining quotes for areas that were broadly comparable in terms of crime, collision and deprivation levels.
In addition to area-based premiums, it explored the poverty premium associated with paying monthly, rather than annually, for car insurance. This is something that many low-income households may be forced to do, as they cannot afford the entire annual lump sum in one go. Paying monthly can cost as much as 41% (or £384) extra, though this drops to 10% (or £86) if they are able to take advantage of the cheapest available quote.
Fair By Design says that a useful first step to address this would be for the Financial Conduct Authority to use its powers to request data from insurers, which would allow it to assess the extent to which current pricing structures represent fair value for consumers, including those on low incomes, as well as how the market is driving up premiums for people on low incomes and/or with protected characteristics, such as race.