Struggling insurance customers could have payments reduced or cut if they can't pay bills

STRUGGLING insurance customers could have payments reduced or cut if they can't pay bills under new proposals by the regulator.

It comes as payment holidays are set to come to an end on October 31, the Financial Conduct Authority (FCA) has confirmed.

In May, the financial regulator told insurers they should offer vulnerable customers up to three month repayment breaks.

The payment holiday was then extended for another three months in August, meaning customers have until October 31 to apply for one.

After the deadline, the FCA has proposed insurance firms should instead provide tailored support to those who are struggling due to the pandemic.

The FCA said that although the majority of consumers will start to resume payments in full from November, many will remain in financial difficulty.

What is a payment holiday and should you apply for one?

PAYMENT holidays are when a lender agrees to pause your monthly repayments for a set amount of time.

This has to be agreed in advance, so don't stop making your repayments until your bank has given you permission to do so.

The majority of lenders are now offering payment holidays, so get in touch with your bank to find out what help it can give you.

Most of the time, it'll require you to fill out an online form.

Typically, payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.

If you think you need to take one, you should speak to your lender to discuss your options – but do note that the break in payments doesn’t remove any debt or financial obligations.

Most lenders will also still charge interest during this time, so be aware that these costs will keep building up.

You should also always continue to make your normal payments if you’re financially able to.

Sue Anderson, head of media at debt charity StepChange, said: “If you can continue to make your normal payments without difficulty, then you should. 

“Any temporary measures being offered by lenders don’t remove financial obligations – they are designed as an emergency measure to help you get through a period where your income may have taken a serious knock.

“However, if you need to use them then you shouldn’t hesitate to talk to your lenders. 

“While taking a payment break would usually be noted on your credit file, the credit reference agencies have confirmed that, during the current crisis, this should not have a future influence on your credit status.”

The FCA proposals, which apply to general insurance cover and premium finance products, include measures such as:

  • Allow customers to make no or reduced payments for a specified period
  • Suspend, reduce, waive or cancel any further interest or charges
  • Allow customers a reasonable time and opportunity to repay the debt, including by deferment of payment of arrears

The industry now has until October 20 to give feedback on the proposals.

Ultimately, it's up to the insurer to decide what help is granted but it should talk through its reasoning with customers.

The FCA said firms shouldn't cancel insurance policies solely because of non-payment without first supporting customers who may be struggling.

Customers who are in financial distress due to the impact of the Covid-19 outbreak are advised to contact their provider to discuss their options.

How do the changes affect my credit score?

Under the proposals, any extra support from November will be reported to credit referencing agencies following a freeze on this information being applied to reports.

In March, credit reporting agencies agreed that any borrower who took up a payment holiday wouldn't see their credit score impacted.

Taking a payment break is usually reflected in your credit score, which lenders use to assess how risky you are as a borrower.

A bad score can affect whether future credit applications are accepted, how much interest you pay and how much you can borrow

The FCA said in the draft guidance: "We expect firms to report any further forms of support, whether or not it follows after a payment deferral, to credit files in the usual way.

"This includes, for example, where it agrees to the customer making no or reduced payments for a further period, without changing the sums due under the contract."

Should you apply for the help?

If you don't need the support to get by, you shouldn't rush to apply for it ahead of the deadline.

Payment holidays are offered in extreme circumstances and are designed as an emergency measure to help you through a difficult financial time.

A payment break doesn't remove any debt or financial obligations.

Most lenders will also still charge interest during this time, so be aware that these costs will keep building up, meaning you'll be in debt for longer.

If you think you need to take one or you worry you'll be struggling later on in the year, speak to your lender to discuss your options.

The latest FCA guidance comes after it proposed tailored help for payday loan and credit card customers too.

Earlier this year, the regulator agreed to suspend plans to cut off credit cards for Brits who are persistently in debt.

Previously, credit card holders who regularly only made minimum repayments faced having their cards cut off starting in February if they failed to respond to warnings from their lender.

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