Chris Lees, Senior Research Officer, Money and Mental Health Policy Institute

What needs to happen to ensure people with mental health problems can access insurance?

8 February 2023

Our latest research has highlighted some of the issues those of us with mental health problems experience when trying to buy and use insurance. The decisions by insurers are pricing and locking lots of people with mental health problems out of the market, and this needs to change. This blog sets out some of the key recommendations for insurers and their regulator, the Financial Conduct Authority, that will help address the problem. 

Is this fair?

A crucial part of why people are experiencing such issues, and at the focus of our recommendations, is the insurance decision making process. Across different parts of life, people with mental health problems are protected from discrimination through the Equality Act. But in insurance, companies are allowed to treat people with mental health problems differently to people without mental health problems, for example increasing the premium. These decisions, however, have to be based on reliable and relevant data that says whether people with mental health problems are a higher risk to insurers – e.g. they are more likely to claim. The problem with this is that it’s very hard to know what data is actually being used by insurers. So we can’t say for certain if these decisions are fair or not.

The role of regulation

This is where the regulator for insurers, the Financial Conduct Authority (FCA) comes in. There are lots of different rules insurers have to follow, including the Equality Act and the recently introduced Consumer Duty. However, these rules can be vague and apply to lots of different companies. So we think the FCA should explain to firms what they need to be doing to follow these rules. For example, in the Consumer Duty, there is a rule around providing fair value to customers. This means that the price you pay for a financial product or service should match the benefits you get from it. However, we found that people with mental health problems were paying hundreds of pounds more for the same product, or were being excluded from making a claim due their condition despite still paying the same price. But beyond this, we believe the FCA needs to look at the data and models being used by insurance companies to make sure that they are complying with these rules and regulations.  

The role of insurers

While we think there is a key role to be played by the FCA, we also think insurers can take some crucial steps to improve outcomes for people with mental health problems. 

Firstly, insurers need to be making sure that they are using accurate and up-to-date information on mental health problems and how they affect someone’s likelihood of making a claim. This can come through the funding of nationally representative and long-term studies by independent researchers. Crucially, this research should look at how people can manage and recover from mental health problems. Insurers should take this into account when they are pricing products as we found that sometimes people with historic experiences can still end up paying more even when they are currently unaffected by their condition. 

Secondly, insurers need to be more transparent about how they make decisions. One of the frustrations we heard from Research Community members was that they couldn’t understand why they were being asked about mental health or why they were then being charged more. Insurers can do more to explain to customers about why mental health is being asked about and why their premiums have increased. There also needs to be more transparency so that organisations like ourselves and the FCA can know what data is currently being used and how that affects the decisions insurers are making. 

Our research has highlighted the impact that insurers’ decisions are having on people’s mental health and finances. Given the cost of living crisis, there is a particular need to address these issues.

You can read our blog about the key findings from the research here. And read more about our recommendations in the full report here.