Some types of insurance policies are only claimed once every 664 years, according to This is Money’s analysis of financial watchdog data.
The problem is small insurance policies that are sold either individually or as an add-on to things like car or home insurance.
Many of these small fonts go almost unclaimed, suggesting that most consumers have no idea they even bought them.
Recent figures from the Financial Conduct Authority have revealed the extent of the problem.
Rarely used: Many insurance policies are sold alongside auto and home insurance and are then forgotten by policyholders
Small insurance policies are individually priced low, worth less than £50 a year each. But it soon adds up.
FCA data reveals that the three least claimed types of insurance are Personal Accident Coverage, Asset Protection (Gap) Coverage and Pre-Event Legal Expense Coverage.
A fifth of Britons have at least one of these policies, and they collectively cost £146million a year in premiums.
Most of this money is retained by insurers, as only a small portion is reimbursed in customer claims.
For example, FCA figures show that only 0.16% of personal accident cover, sold as a supplement to car insurance, is claimed each year.
This means that on average, a person with this insurance would only claim once every 664 years on average.
An astonishing 3.4million Britons have this insurance cover, worth £30.83million a year – or £8.80 per policy on average.
|type of insurance||Frequency of complaints per semester||Number of years needed to claim an average policy||Premiums paid in the event of a claim||Claims acceptance rate|
|Personal accident (surcharge)||0.08%||664||17.48%||96.57%|
|GAP insurance (additional)||0.15%||333||5.21%||96.86%|
|BTE legal fees – home||0.16%||312||0%||56%|
|Personal accident (autonomous)||0.42%||119||30.46%||80.22%|
|BTE legal costs – automobile||0.50%||100||0%||95%|
|Source: FCA Value Measurement Data, July to December 2021|
Another example is complementary Gap (asset protection guarantee). This cover reimburses the depreciation in value of your car if it is written off and is normally sold with engine cover.
But Gap insurance has a loss ratio of just 0.30% per year – or one customer making a claim every 333 years on average.
Almost half a million (492,000) people have this cover and pay £28.63million for it, or around £58 a year each.
Pre-event legal protection insurance covers attorney fees for disputes over your property. It can be purchased individually or in addition to home or automobile insurance.
The home insurance variety is claimed, generally, once every 312 years per policyholder. Around 9.1m Britons have one of these offers, and insurers charge £87m a year for them – approximately £9.40 per year per person.
These three insurance policies alone are purchased by 13.1 million people in the UK each year, or one in five of the UK population.
Add-ons pay more…if customers remember
But some small insurances are very useful once consumers have actually claimed, because they pay almost all the time.
Individual accident cover reimburses 96.57% of claims, for example. For Gap insurance, that figure is 96.86%, but for pre-event legal expenses, it’s lower, at 56%.
This claims acceptance rate is broadly similar to that of motor insurance, where 5.11 percent of drivers file claims each year and 99.18 percent of claims are paid.
For home insurance, approximately 2.63% of policyholders file a claim each year and 77.36% of claims are paid.
Some customers forget they have coverage and may forget to claim a valid insurance policy
Michael Sicsic, Financial Advisor
To be fair to insurers who sell smaller top-up packages, they’re designed for rare emergencies and aren’t meant to have huge claims levels – but it seems consumers have mostly forgotten about them.
Michael Sicsic, managing partner at financial services consultancy Sicsic Advisory, said: “Most of this cover is used for emergencies such as an emergency or home breakdown – so you would expect to see a low frequency of complaints and a good rate of acceptance of complaints.”
However, the fact that insurers keep most premiums for the above policies to themselves and do not pay them out in claims, suggests that many consumers seem to forget they have the cover – if they realized that they had it in the first place.
The level of premiums paid in the event of a claim can be as low as 0% for some smaller lines of insurance.
For context, around 40% of home insurance premiums are then paid in claims, rising to 56.34% for car insurance.
Sicsic added that customers are much more likely to request a standalone insurance contract, compared to an add-on.
He said: ‘This suggests that some customers forget they have cover and may forget to claim a valid insurance policy.
“It is fair to assume that these products are inherently useful. It’s about whether customers understand them and whether their price is right.
An FCA spokesperson said: “Companies must ensure that their products provide fair value to consumers, taking into account value measurement data.
“Under FCA rules, companies must regularly review the insurance products they offer, assess whether the products offer fair value and take appropriate action if they do not. If necessary, we will consider other measures to protect consumers.
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