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Payment holidays and premium refunds proposed for insurance customers struggling due to coronavirus

The financial regulator is proposing measures to help customers struggling to pay insurance premiums due to coronavirus. It's proposing payment holidays of up to three months, plus has told insurers to look at whether cover still provides "value" to the customer where the pandemic means the policy is no longer suitable or where they can't use certain benefits of their cover.

The Financial Conduct Authority (FCA), which regulates the insurance industry, has today published two quickfire consultations to help customers who are struggling to pay their insurance premiums, or who need to make changes to their insurance, due to the coronavirus crisis.

The proposals cover all types of general and protection insurance, which means it covers car, van and motorbike insurance, home insurance, travel insurance, boiler cover, income protection insurance, critical illness cover, life insurance and private medical insurance, to name just a few. It will also cover premium credit providers – these are the companies that give you a "loan", meaning you can pay monthly premiums rather than annual premiums.

Under the proposals, insurers must:

  • Offer payment holidays of up to three months to customers who are struggling to pay their premiums. Interest will still accrue during the payment holiday.

  • Reassess the risk of providing insurance to customers, and lower premiums if the risk is now lower.

  • Look at whether a customers needs any extra cover and benefits they currently have and, if not, remove them and reduce premiums accordingly.

  • Waive cancellation fees if a customer wants to cancel.

  • Waive admin fees if a customer agrees to change their level of cover.

The FCA has also issued a related but separate consultation asking insurers to look at their cover more widely and to make sure that customers paying for insurance products are getting "value" from their insurance, and if not, to look at ways they may be able to recompense the customer, whether that involves providing different but comparable benefits, or refunding premiums.

Both consultations have tight deadlines. The consultation on measures to help those temporarily struggling will close next Tuesday (5 May), and agreed measures will come into practice on Wednesday 13 May. The separate consultation on measures to reassess whether insurance products provide value closes on Friday 15 May, and will come in to practice by "the end of May" if approved.

These new proposals follow a set of payment freezes for customers struggling to make payments on car finance deals, payday loans, buy-now-pay-later agreements and other credit products, which were confirmed last week, in addition to the previously-announced help on loans, credit cards and overdrafts.

See our Coronavirus Finance & Bills Help guide for more info on paying bills and managing debts during the coronavirus pandemic.

What help's available for customers who are struggling?

The FCA has proposed a series of measures to help insurance customers during the coronavirus pandemic.

  • One- to three-month payment holidays. If a customer is struggling to pay premiums because their finances have been affected by coronavirus, the insurer should offer a payment holiday. This will apply where a customer pays their premiums monthly. Interest will still accrue during the payment holiday.

  • Reassessing the level of cover the insurance provides. Again, if a customer contacts the firm, the insurer should assess if the insurance is still suitable for the customer. For example, if a car insurance customer is now driving many fewer miles, the insurer should look at lowering the mileage covered by the policy, which could result in the customer benefiting from a lower premium.

  • Reassessing any extras on the insurance. Many insurance policies come with "add-ons". For example, people may have taken key cover on top of their car insurance which they no longer need as they're not driving. Insurers should see whether these extras could be removed and, if so, take them off and reduce premiums accordingly.

  • Waive cancellation fees if a customer wants to cancel. If the customer decides that – even with payment holidays and cover levels reassessed – they want to cancel the policy, the firm shouldn't charge an admin fee to do this. In addition, if the customer wants to take out the insurance again at a later date, they shouldn't be penalised for having cancelled.

  • Waive admin fees if a customer changes their level of cover. Some insurers charge admin fees for changes customers make to their policy mid-term. The FCA has said insurers shouldn't charge these if the changes are made due to the customer being in financial difficulty or due to their lifestyle changing because of coronavirus.

Under the proposals, cover can be adjusted on a short-term basis, eg, until coronavirus restrictions are eased or lifted, or on a long-term basis, eg, until the policy expires. If cover is adjusted on a short-term basis, providers are required to reassess the cover when the temporary period ends to ensure customers aren't under-insured.

Who's eligible for a payment holiday?

Like the measures proposed for other financial products, it's only customers whose financial difficulties were caused by the coronavirus situation who are eligible. You'll also need to ask for help – under the proposed new rules, payment holidays don't have to be offered automatically.

If you're already struggling financially for unrelated reasons, you could be offered other forms of "forbearance" (tolerance and help) under existing rules – which could include waiving late fees and rescheduling payments.

Firms won't be expected to investigate why you're asking for a payment holiday, though they could decide not to give you one if this would clearly be against your interests. If this is the case, they'd be expected to help you in other ways.

What do insurers need to do if their policies no longer provide "value" to customers?

The "product value" part of the consultation suggests that where the insurer is no longer providing the same level of cover as it was when the policy was bought, it should look again at those policies as a whole. The FCA suggests firms could deliver benefits in a different way, provide comparable benefits, reduce premiums while the service is not being offered, or give refunds of premiums already paid.

Examples of policies which may be affected include boiler cover with servicing included which now can't take place, or a private medical insurance policy where customers can no longer access operations and specialists.

The FCA has asked for comments on this more wide-ranging part of its consultation by Friday 15 May, with measures expected to come in by the end of May if approved.

What does the FCA say?

FCA interim chief executive Christopher Woolard said: "The current emergency has altered the value of some insurance products and we believe that insurers should be looking at whether their products still offer value.

"Firms should also look at how they can help customers who may be experiencing financial difficulties as a result of the virus. Many insurers are already taking some kind of action to assist their customers and we want to see a degree of consistency for consumers. Today's proposed guidance and statement aims to make our expectations clear to all firms in the insurance market and provide future certainty."

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