By Kristy Dorsey

New rules to protect an estimated 13 million vulnerable consumers at risk of falling behind on their insurance payments are set to come into force at the start of next week.

UK watchdogs at the Financial Conduct Authority (FCA) have issued their final guidance on a series of temporary steps designed to assist holders of car, home, life and other insurance policies. The prospect of such measures was first raised at the beginning of this month amid concerns that some providers have not been doing enough to help customers under financial strain because of the coronavirus pandemic.

From May 18, all insurers, intermediaries, finance lenders, finance brokers and debt collectors will be expected to allow policyholders to defer costs while keeping coverage in place on both general and protection insurance policies. This will extend to travel, private medical, income protection, accident and sickness policies.

The measures will initially be in effect for three months, after which they will be reviewed and revised “if appropriate”.

READ MORE: Economists question ‘overly-optimistic’ UK recovery scenario

For customers struggling to pay monthly instalments, the FCA expects firms to grant a payment deferral “unless it is obviously not in the customer’s interests” to do so. This should cover a period of one to three months, though firms can go beyond three months if they wish.

Policyholders will have the right to ask for a deferral at any time up to August 18, at which point the window for requests is expected to close.

Insurance providers will also be required to consider other options such as re-assessing a customer’s risk profile, which may have changed because of the pandemic and could offer scope to lower premiums. Additionally, firms will have to consider whether other products would better meet customers’ needs, and revise the cover accordingly.

The FCA says customers paying by instalments could see a reduction in their monthly premium as a result, while those who have paid upfront could get a partial refund on their premium, In all cases, the FCA says cancellation and other fees associated with adjusting customers’ policies should be waived.

READ MORE: UK in middle of 'significant recession' as output shrinks at record pace due to coronavirus

Sheldon Mills, interim executive director of strategy and competition at the FCA, said these steps will provide urgent support to those who need it.

“As with other areas of finance, we have worked quickly to draw up measures to help policyholders in financial difficulty because of coronavirus,” he said. “The majority of respondents expressed support for the proposals we published at the start of May.

“Many firms in the insurance industry have already taken some of the actions we are suggesting here to support customers, such as premium reductions, discounts, waiving fees and payment deferrals.”

According to a report issued earlier this month by Consumer Intelligence and Sicsic Advisory, the number of consumers who identify as “vulnerable” has hit 13 million, double that of a year ago. Of those questioned, 26% said they fit the FCA’s definition of a vulnerable, up from 13% in March 2019.

READ MORE: Half of Scottish families with children are financially struggling

The FCA defines a vulnerable customer as someone who due to their circumstances is “susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”.

In its latest monetary policy report, the Bank of England estimated that unemployment is set to double to 9% in the second quarter of this year because of the pandemic. Meanwhile, most recent figures show that the Government’s furlough scheme – which pays 80% of employees’ wages up to a maximum of £2,500 per month – is currently supporting about 7.5 million jobs.

The new rules for insurers apply only to consumers. The FCA is currently seeking legal clarity on the wording of some business interruption insurance policies to determine whether they should be providing cover in cases where claims have been rejected.

However, in its final guidance document, the FCA said: “Firms should remember that the principles, including the obligation to treat customers fairly, extend to all business customers within the scope of the consumer credit regime. Firms may still find the guidance helpful when considering how to comply with the principles in relation to businesses.”

UK car insurers have been widely criticised for refusing to rebate premiums to consumers who are not driving, or who are driving fewer miles as a result of the lockdown. Direct Line, for example, reported a 70% fall in claims during the month of April.