Over-50s insurers pocket £86m as customers cancel policies

The study of 1,400 UK adults conducted by YouGov for the mutual indicated £173m of life insurance was lost in 2014, because 52,000 people cancelled their over-50s policy.

In terms of premiums paid, collectively this represents £86m of customers' wasted cash, Royal London said. 

As a result Royal London published a report High and Dry which has called for the industry to review the following:

The rate of policy cancellations in the Over 50s life cover market, and effect on customers, is alarming;

• Cancellations are often driven by financial difficulties, and leave customers poorer and unprotected;

• The market place is crowded and can be confusing for consumers;

• Cancelling a policy is an all too quick and easy process, which drives profit for insurers;

• Most policies lack ‘safety' features which customers need - product standards need a major rethink;

• The market needs more customer-focused products, designed for customer needs not maximum profit.

The mutual said the study highlighted the extent to which some UK providers are abandoning customers at a "critical time" as they struggle to keep up payments.

Financially vulnerable 

The findings indicate many customers who cancel their over-50s life cover are financially vulnerable; for example, a quarter (25%) who lapsed their policy have no savings or investments.

Although a third (33%) of customers chose to cancel their over 50s policy because they no longer ‘needed' it anymore while a fifth (20%) of policy-holders said it was due to long-term money issues.

Two in five people (40%) said they cancelled either because they couldn't afford their premiums or because they needed to prioritise bills instead. 

Although at the time of cancelling many (25%) customers said they felt a strong sense of ‘relief' afterwards, a significant number (18%) felt ‘regretful' or sad, and some (10%) admitted they felt worried, confused or nervous after cancelling.

The majority (82%) said they were ‘satisfied' they made the right decision.

However, two in five (41%) people reported they felt ‘unhappy' to have lost premiums they had paid, especially if they'd held the policy for a long time.

Unhappiness levels rose to 45% among those who had held the policy for over three years.

Among those who cancelled because they ‘couldn't afford the premium', the majority (80%) said it was due to long-term money issues, rather than a sudden or unexpected financial issue.

Insurer action points 

Jerry Toher, CEO of Royal London's Consumer Division said:"This research highlights how poorly designed products affect customers, especially those on low incomes; and confirms why the over-50s life cover market must change current practices.

"I want to see the market remodelled - from the way products are designed, to the customer journey and how this type of insurance meets people's real needs."

He added: "Not all over-50s life insurance policies are the same - the underlying details can make thousands of pounds of difference to a customer. We urge customers considering this type of protection to shop around. But don't just compare the price - take time to understand the product features and how it works to prevent getting caught out."

"Armed with this new evidence, we are investigating how we can help more customers reach better outcomes, for example establish ways to better serve customers facing financial hardship.

"We now invite other organisations working in this space to respond and suggest ways to improve our market, so it works better for customers. A sea-change is within sight, but requires collaboration: commitment from providers, insight from consumer bodies on the frontline, and support from impartial advice organisations."

Further reading 

Royal London calls for over 50s ‘shake up' following Which? Report