There’s little doubt that we’re in the middle of what is an extremely challenging time for many households across the UK.
A combination of circumstances has hit many families squarely in the pocket.
Last month, the Bank of England announced that it expected the UK to enter the longest recession in history and one which might result in half a million people losing their jobs.
Two weeks later, new figures published by the House of Commons’ Library revealed that rising food and energy prices meant inflation was 11 per cent higher than last year.
Recession and inflation might sound relatively abstract concepts but an even more recent study by the Office for National Statistics (ONS) has spelt out just what they mean to individuals trying to balance their personal budgets.
Just over nine-in-10 people reported that their living costs were higher than in December 2021. Three-quarters actually stated that their household expenses had risen within the course of the last month alone.
To all that can be added the largest reported drop in house prices in four years.
Given the importance of watching the pennies, it is perhaps little surprise to find families prioritising their spending and at least considering what they might ditch in order to make ends meet.
One article in The Times has suggested that roughly one-fifth of individuals are weighing up whether to cut back on their insurance cover to cope with a rise in the cost of living.
Doing so, however, can leave you exposed if the very circumstances which that insurance was meant to protect you against actually occur.
That’s particularly true as we head into the depths of winter, as Karen Waugh explained only this week.
Over the many years that Karen, myself and the rest of our Broadway colleagues have worked in the insurance industry, we have been through a number of economic downturns and seen what impact they have on private and commercial clients.
Those who have no cover carry the entire risk themselves – something which is rarely, if ever, advisable or affordable.
Businesses and individuals who underinsure run another kind of risk.
That’s because insurance is not just meant to reimburse you for the purchase price but the cost of replacement. As we have seen, inflation and the added strain on availability resulting from Brexit means that consumer products, building materials and services are all more expensive.
If you have underinsured by, say, 50 per cent, an insurer may settle a claim for half of what the full replacement costs would be. Some, of course, might even refuse to pay out at all.
In the event of having to claim for an expensive item, that shortfall could be substantial, especially if those objects are now either hard to acquire or have appreciated substantially over time.
There are ways, though, to retain essential cover in a cost-effective way.
The key is being as honest and on top of all the relevant information as you should outside of a recession.
Can you avoid the extra charges resulting from direct debits by paying your annual premiums in one go? Is the mileage which you provide to motor insurers accurate? Is the value of your home contents and personal possessions also up-to-date?
All these things can add up and really make a difference to the cost of your cover.
Brokers like Broadway are always on hand to advise how clients can reduce their costs if necessary but not the extent to which they are protected.
Even the most senior economists can only make forecasts about how things will look in the future.
Similarly, none of us can tell what may happen in our homes or workplaces in the months or years to come.
Few of us have the means or the inclination to cope with the loss of our homes, our businesses or our possessions without flinching
Although times really are hard for many people, it really is best not to take a chance on what’s around the corner.
Written by Geraint Jones, Senior Private Clients Executive, Broadway Insurance Brokers