Premium Credit has found that motor and home insurance customers are increasingly relying on credit to purchase cover, while GlobalData surveying has found that consumers of different ages exhibit distinct preferences when it comes to credit payments. Insurers may need to review the payment structures they offer in response to these trends. According to GlobalData’s 2022 UK Insurance Consumer Survey, 44.1% of consumers aged 30 and above utilised credit to purchase home insurance, surpassing their counterparts under 30 by 1 percentage point. Older consumers favoured one-off credit card payments (17.3%) and monthly direct debit premium financing (16.2%) as their preferred credit options. Conversely, among the younger demographic, monthly credit card payments (14.1%) and PayPal monthly payments (12.4%) were the top choices when utilizing credit to purchase home insurance.
Several factors may contribute to the higher use of credit by consumers aged 30 and above. Firstly, older consumers often have additional responsibilities that may prompt them to use credit to manage their cash flow more effectively. Life stages and responsibilities such as raising a family or paying off a mortgage may drive older individuals to opt for credit to spread the cost of home insurance over time. These stages are significant markers that often include additional financial responsibilities. As individuals progress through these life stages, their financial needs and priorities may evolve, influencing their preferences and choices such as opting to use credit. Moreover, the longer credit histories (and thus more established credit scores) of older consumers may provide them with better access to credit options, making it a more convenient choice for financial transactions, including insurance purchases.
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Meanwhile, Premium Credit found that in 2023, 72% of insurance customers use some form of credit to fund cover, compared to 61% in 2022. The biggest increases were recorded for customers buying motor and home policies. The study found that 49% use credit for home insurance in 2023 compared with 40% a year ago; meanwhile, 48% pay for motor insurance with credit compared with 40% in 2022.
The current cost-of-living crisis, marked by surging inflation and rising energy bills, has likely driven more consumers to use credit for insurance purchases. As living expenses increase, individuals may find it challenging to afford lump-sum insurance payments. In response, consumers may opt for credit options (such as monthly financing or credit card payments) to spread costs over time and manage their budgets.
However, it is important to note that while this provides financial flexibility, a counterpoint exists in the form of potentially high interest rates associated with credit options, particularly given the increase in interest rates in the UK over the past 12 months. This factor adds an extra layer of consideration for consumers, as higher interest rates can potentially make credit-based options more expensive in the long run. As a result, consumers must weigh the financial trade-offs before choosing credit as a means of managing insurance payments. To respond to the growing trend of consumers using credit for insurance purchases, insurers must adjust by understanding the preferences of different age groups. By recognising the varying credit options favoured by consumers of different ages, insurers can customise their payment structures for each group accordingly. This adaptable approach will allow insurers to align with changing consumer behaviours and better cater to the specific financial needs of their customers.
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