Car insurance: stripped back coverage confusing drivers, consumer group warns

Fairer Finance believes insurers' desire to stay at the top of price comparison tables is eroding trust. Is your car insurance cover adequate?

Car Insurance Claims process. Insurance agent explaining damage of car exterior to customer
(Image credit: Getty Images)

A surge in the price of car insurance has led to a sharp rise in insurers offering ‘stripped back’ cover to try and stay at the top of price comparison tables. But this risks causing major confusion for drivers, a consumer group says. 

As car insurance premiums have surged by almost 70% in the past year, insurers are rapidly introducing new 'essentials' cover tiers to offer more affordable alternatives, according to analysis by Fairer Finance

As a result, the consumer group is urging insurers to ensure full transparency so consumers understand exactly what these stripped-back policies do and do not cover.

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James Daley, managing director at Fairer Finance, says: “Many insurance brands that once had a single comprehensive car insurance policy, now can have three or four different sub-brands all offering different tiers of cover. This brand stacking is designed to ensure they can keep their name at the top of the price comparison charts – but it makes choosing the right policy all the more difficult for consumers.”

These policies typically provide more cover than basic third-party, fire, and theft policies, but omit many features found in standard car insurance policies. Common exclusions in essential policies include windscreen cover, stolen key replacement, courtesy cars, and the uninsured driver promise, a guarantee to reinstate no-claims discounts and reimburse excess if involved in an accident with an uninsured driver.

 Which insurers are stripping back?

Admiral, Ageas, and Hastings have offered these stripped policies for some time, but 2023 saw newcomers including Churchill, Sainsbury’s, and Geoffrey Insurance adding an essentials policy to their product list, as well as new insurers like Boom and Moja introducing them as an option.

The cost of car coverage has rocketed as a result of inflation significantly increasing the cost of replacement parts for vehicles and labour rates.

Daley adds: “There’s no standard definition of an essentials policy, with some insurers stripping out windscreen cover, while others have raised excesses, or removed cover for lost or stolen keys.

“Since many customers will opt for essentials cover due to the lower price, it is vital for insurers and comparison sites to be clear about the exclusions and limitations of these policies. People need to understand these restrictions at the time of purchase rather than at the time of making a claim. Customer trust will only further erode if the industry doesn’t address this.”

Previous research from Fairer Finance conducted earlier this year found that consumer trust in car insurance experienced a notable decline in the last six months, coinciding with a significant increase in premiums. 

Daley says: “This situation raises the question of whether there should be a minimum standard for comprehensive policies to prevent insurers from continually stripping features back to bring down the price. “

Chris Newlands

Chris is a freelance journalist, and was previously an editor and correspondent at the Financial Times as well as the business and money editor at The i Newspaper. He is also the author of the Virgin Money Maker, the personal finance guide published by Virgin Books, and has written for the BBC, The Wall Street Journal, The Independent, South China Morning Post, TimeOut, Barron's and The Guardian. He is a graduate in Economics.