Consumers continue to tighten their belts as the cost-of-living crisis rages on

As we step into August, for some it might be hard to believe that it’s been almost three years since the cost-of-living crisis began to unfurl here in the UK. It’s undeniable that daily life looks different right now for most – hard cutbacks have been made, and luxuries are fewer are far between for many. Despite the summer holidays being in full swing, our latest cost-of-living tracker data shows consumers are continuing to cut back on key luxuries like takeaways, clothes and shoe shopping, and days or evenings out.

While this may seem like just an unfortunate sacrifice of summer extravagancies, as we approach the end of summer, previously side-lined outgoings, such as use of heating and dryers, will soon be subbed back in, paving the way for even further expenses in the not-too-distant future. This will put consumers in an even more difficult position over the coming months, leaving no option but to cutback in more vital areas.

Last month (July 2023) we asked consumers about the things they have cut back on in the last three months. Unsurprisingly, luxury items dominated the top of the list of cutbacks, but the proportion reducing spending on more vital items remains a cause for concern.

Of the circa 850 surveyed, 51% say they have pared back their food shopping bill. Now, for some that might mean swapping Waitrose for Aldi, not the end of the world by any stretch of the imagination. But for those on lower incomes, this could mean going hungry.

Also worryingly, 8.2% cited insurance as one of the areas they have tightened spending. Of these, 35% have cancelled a policy and 72% have swapped to a cheaper policy, potentially leaving themselves under-insured and at risk of financial detriment.

But it doesn’t stop there. When we asked about future cut backs, a further 6.8% stated that they would consider scrimping and saving on their insurance. We are also seeing a marked growth in consumers considering paying for their insurance in instalments. When asked if they would be more inclined to pay instalments as a result of feeling financially squeezed, 31% responded that yes, up 6% on February 2023 – burdening these customers with the added cost of credit.

These combined factors present a huge opportunity for consumer harm, at a time when consumer vulnerability is high. In fact, when asked whether they consider themselves vulnerable as per the FCA’s definition, a whopping 25% said ‘yes’. In reality, this figure is likely much higher.

The topic of vulnerable customers is a theme that repeats in the newly enacted Consumer Duty regulation. Insurers are now required to develop a deep understanding of their customer base and ensure vulnerable customers are receiving good outcomes, equal to non-vulnerable customer, avoiding customer harm. The cost-of-living crisis and the resulting consumer behaviour add a layer of urgency to this regulatory requirement as consumers continue to cut back on their insurance spend.

On the journey to becoming compliant, it is important that insurance firms work to understand the real life challenges facing their customers, so they can provide the support needed to avoid potential consumer harm.

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