FCA tells insurance providers to offer coronavirus payment holidays and refunds – are you eligible?

The Financial Conduct Authority (FCA) has told insurers that they must help customers with general and protection insurance policies who are struggling with payments because of the effects of the coronavirus pandemic. From Wednesday 13 May insurers will be expected to allow policyholders to defer costs temporarily while keeping cover in place on car, home, travel, private medical, life, income protection and accident and sickness policies to name a few. The regulator has also told insurers they must ensure that all customers of general and protection policies, not just those suffering financially because of COVID-19, are getting real value for money during the pandemic.

These two moves unveiled on 1 May come amid growing concern that although some providers have stepped forward to offer payment help, refund premiums or offer policy adjustments for car, home and private medical insurance customers, others have not been proactive in doing so. Here Which? takes a closer look at what payment help insurers will be required to offer and what changes insurers will have to make to ensure they provide value for money during the pandemic. You can navigate this story by clicking on the links below:

Read the latest coronavirus news and advice from Which?

How can I cut the cost of my insurance?

As the coronavirus pandemic is outside people's control, the FCA has told firms they should offer extra assistance in order to treat customers fairly during the crisis. This may include:

  • reduced monthly premiums
  • payment holidays on monthly premiums for one to three months
  • partial refunds for annual payments
  • waiving fees for adjusting or cancelling policies
  • relaxing charges or interest for a missed payment
  • extending cooling-off periods
  • rescheduling the term
  • waiving missed or late payment fees
  • no charges for amending repayment dates
  • writing off unpaid repayments and associated interest, fees or charges

The FCA has also instructed firms that it does not expect customer costs to rise following a reassessment of their needs.

You should consider your current and future financial situation and when you talk to your insurer, ensure you fully understand the implications of any proposed arrangement. You should avoid taking a step that will end up leaving you worse off.

Who is eligible for help with insurance payments?

The FCA's proposals offer temporary help for those consumers who are in financial difficulty because of coronavirus. However, the FCA is not expecting firms to ask each customer if requests for payment holidays or other help are connected to coronavirus.

This assistance covers all general insurance. This includes insurance for homes, motor vehicle, travel, private medical insurance, pets, extended warranties, mobile phones and weddings. It also covers protection insurance which includes life, critical illness cover for particular conditions, income protection where there is accident or sickness and redundancy cover.

Investment insurances such as endowments are outside its scope. It mirrors the support already outlined by the FCA for people with mortgages, loans, credit cards and overdrafts and car finance. You can get this assistance whether you pay monthly, annually or pay-as-you-go directly.

It also applies whether you went directly to an insurer or via an appointed representative and if you used a finance lender or broker of finance for your insurance premiums. The help is not designed for people who were struggling to pay premium finance before the pandemic. If you fall into this category, your premium finance firm should offer forbearance such as suspending, reducing, waiving or cancelling interest or charges, deferring arrears or taking token payments for a reasonable period.

How should I apply for help with my insurance costs?

You will need to contact the firm through which you arranged your insurance or the finance for the premiums to discuss your options.

However, if you have missed payments during the crisis, the firm should get in touch with you. Applying should be being made as easy as possible. Vulnerable customers or those who can't communicate over the phone should be provided for.

You can trigger help in a number of ways:

  • by informing the firm you are having difficulty paying;
  • if you ask to reduce cover even if you have already paid your annual premium in full or you pay monthly;
  • if you ask about your level of cover in view of the pandemic.

Firms should follow a process to arrive at an appropriate and fair way of treating each customer. If you hold more than one policy with a firm, it should consider treating them all in the same way.

What is a payment holiday and should I take one?

A payment holiday is one of the options the FCA has set out for insurers. This is where you and a firm have agreed that you will not pay premiums for a set period.

Importantly, your cover stays untouched. Under the guidance laid out by the FCA for payment holidays on insurance during the coronavirus crisis, you won't have to pay any fees to arrange a holiday, nor will you have to pay anything during the holiday. However, interest will continue to rack up during the holiday and you will have to consider how, when it finishes, you will pay for this and resume payments.

If this looks like it will be a problem, you may be better off not taking a holiday but choosing other options such as reduced cover. Firms are supposed to find out whether you will be able to resume payments. If while you're on the holiday, the prospect of restarting payments becomes an issue, you should work with the insurance provider to avoid missing the forthcoming payments by reviewing other options.

If you are going to need credit at the end of the holiday to finance premiums, the fact that you had to take a holiday should not on its own count against you. Instead, firms should consider whether you are now in or developing a stronger financial position. If your situation has worsened and you have become entitled to forbearance because you are struggling to pay essential living costs such as accommodation, council tax, food and utilities, then the interest for the holiday period should be waived.

Will a payment holiday affect my credit score?

As long as you stick to the agreement, an insurance payment holiday won't affect your credit score so it is far better to arrange one than simply stop paying.

The three main UK credit reference agencies, Experian, Equifax and TransUnion, have agreed to an 'emergency payment freeze', with new guidance which ensures an individual's credit score is not affected over the duration of an agreed payment holiday. The payment holiday will freeze your payment status relating to that particular insurance from the point it is agreed until the end of the holiday. So while the amount you owe will build-up on your credit file, arrears relating to a payment holiday will not.

If your credit record becomes tarnished because the firm didn't process the holiday or an alternative arrangement in time and a payment was recorded as missing, the firm and credit reference agencies should work with you to put this straight. Similarly, you shouldn't have to pay default or arrears charges. However, measures implemented out of forbearance will mark your record.

Will my policy still provide enough cover?

Importantly, firms must work with customers to maintain vital cover.

If your payments are deferred, the cover will remain intact during the pause in payment. However, reduced payments mean either the cover stays the same but the payment arrangements have changed or that you've agreed to reduce cover. Cover can be reduced by trimming out what's currently not needed.

In some cases, your level of risk may have fallen. For example, drivers may not be using their car or no longer using it for business. Or you may not need additional products.

Motorists, for example, may not require legal expense insurance or key cover. Reduced cover can last for a short time or until the end of the policy.  Either way, you and the firm should ensure that when that time comes to an end, you are not going to be under-insured. To do this, you should agree to a clear end date to the reduced cover or that you will contact the firm if your cover needs to change.

Probe into value for money may force price cuts

The FCA has also given insurers until 15 May to show how they have changed their products and services to ensure they are giving consumers value for money in response to changes brought by coronavirus.

Pointing out the need for change, the watchdog highlighted car insurance where drivers were at lower risk because they were using vehicles less, boiler cover where engineers could not provide servicing because of social distancing, private medical insurance where access to some benefits had stopped and public liability where the cover was no longer relevant. The FCA expects firms to communicate clearly with customers where value isn't being delivered and what they are doing about this. If confirmed the measures will come into force by the end of May.

Coronavirus insurance help and refund advice from Which?

You can find out more about the help available and refunds being offered across insurance products in our dedicated stories below:

Read the latest coronavirus news and advice from Which?

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