Some types of insurance policy are only claimed on once every 664 years, according to This is Money’s analysis of data from the financial watchdog.
The problem lies with smaller insurance policies that are sold either individually, or as add-ons to things like car or home insurance.
Many of these smaller policies are almost never claimed on, suggesting most consumers have no idea they have even bought them.
Recent figures from the Financial Conduct Authority have revealed the scale of the problem.
Rarely used: Many insurance policies are sold alongside car and home insurance and are then forgotten about by policyholders
Smaller insurance policies are individually low in price, worth less than £50 a year each. But that soon adds up.
The FCA’s data reveals that the three types of insurance claimed on the least are personal accident cover, guaranteed asset protection (Gap) insurance and before-the-event legal expenses cover.
A fifth of Britons have at least one of these policies, and they cost a collective £146million a year in premiums.
Most of this money is kept by insurers, as only a small amount is ever repaid in customer claims.
For example, figures from the FCA show that just 0.16 per cent of personal accident cover, sold as an add-on to motor insurance, is claimed on every year.
That means, on average, an individual person with this insurance would claim just once every 664 years on average.
An astonishing 3.4million Brits have this insurance cover, worth £30.83million a year – or £8.80 per policy on average.
| Insurance type | Claims frequency per six months | Years taken to claim on average policy | Premiums paid out in claims | Claims acceptance rate |
|---|---|---|---|---|
| Personal accident (add-on) | 0.08% | 664 | 17.48% | 96.57% |
| GAP insurance (add-on) | 0.15% | 333 | 5.21% | 96.86% |
| BTE legal expenses – home | 0.16% | 312 | 0% | 56% |
| Personal accident (stand-alone) | 0.42% | 119 | 30.46% | 80.22% |
| BTE legal expenses – motor | 0.50% | 100 | 0% | 95% |
| Source: FCA value measures data, July to December 2021 | ||||
Another example is add-on Gap (guaranteed asset protection) insurance. This cover pays out for the depreciation of the value of your car if it gets written off, and is normally sold alongside motor cover.
But Gap insurance has a claims rate of just 0.30 per cent a year – or a single customer making a claim every 333 years on average.
Almost half a million (492,000) people have this cover, and they pay £28.63million for it, or around £58 a year each.
Before-the-event legal expenses insurance pays for lawyers’ fees for wrangles relating to your property. It is bought individually or as an add-on to home or car insurance.
The home insurance variety is claimed on, typically, once every 312 years per policyholder. Around 9.1million Brits have one of these deals, and insurers charge £87million a year for them – around £9.40 a year per person.
Those three insurance deals alone are bought by 13.1million people in the UK every year, or one in five of the UK population.
Add-ons pay out more… if customers remember them
But some smaller insurance deals are very useful once consumers do actually claim, because they pay out almost all the time.
Personal accident cover pays out on 96.57 per cent of claims made, for example. For Gap insurance this figure is 96.86 per cent, though for before-the-event legal expenses it is lower, at 56 per cent.
That claims acceptance rate is broadly similar to car insurance, where 5.11 per cent of drivers claim every year and 99.18 per cent of claims are paid out.
For home insurance, around 2.63 per cent of policyholders make a claim each year, and 77.36 per cent of claims are paid.
Some customers forget they have the cover and could be forgetting to claim on a valid insurance policy
Michael Sicsic, financial consultant
To be fair to the insurers selling smaller add-on deals, they are designed for rare emergencies and are not meant to have huge levels of claims – but it seems consumers have mostly forgotten about them.
Michael Sicsic, managing partner of financial services consultancy Sicsic Advisory, said: ‘Most of these covers are used for emergencies such as home emergency or breakdown – so you would expect to see a low claims frequency and good claims acceptance rate.’
However, the fact that insurers keep most of the premiums to themselves for the above policies, and do not pay them out in claims, suggests many consumers seem to forget they have the cover – if they ever realised they had it in the first place.
The level of premiums paid out in claims can be as low as 0 per cent for some smaller lines of insurance.
For context, around 40 per cent of home insurance premiums are then paid out in claims, rising to 56.34 per cent for car insurance.
Sicsic added that customers are much more likely to claim on a standalone insurance deal, compared to an add-on.
He said: ‘That does suggest that some customers forget they have the cover and could be forgetting to claim on a valid insurance policy.
‘It’s fair to assume these products are inherently useful. It comes down to whether customers understand them, and whether they are fairly priced.’
An FCA spokesperson said: ‘Firms must ensure that their products offer fair value to consumers, taking into account the value measures data.
‘Under FCA rules, firms must regularly review the insurance products they offer, assess whether products are providing fair value and take appropriate action if they do not. If necessary, we will consider further action to protect consumers.’
