Recently we checked the most popular excess options on Quotemonster. $500 health excesses are now easily the most common – now chosen for more than 30% of quotes, second most popular is $250 excess, but fourth is $1,000 excess, and it is rising in popularity. Nil excess is now the third most popular option, accounting for less than 20% of quotes.

What’s going on?

Well, people are wealthier. Plus, people in work have such easy access to credit, at such low rates, that finding $500 at short notice is pretty easy for most people. One way to view easy access to large amounts of short-term credit is a kind of instant emergency fund. It is typical for credit card users (that have a home loan with their bank) to be offered $20,000 and $30,000 credit card limits. Provided they keep credit cards paid off they have a big pool of short-term credit. A natural consequence is that we should probably see a lot more high excess insurance purchases.

Another dimension of the new financial environment is low interest rates. With rates super low you can borrow against property at 4% to 5%. Modal loadings – the extra cost to pay monthly, rather than annually – are often 7% in life insurance, and can be as high as 20% in general insurance. Logically the market should take this opportunity to switch these bills to annual payment and save money.

But ‘the market’ is a myth. There are segments in the market which behave in quite different ways. Sometimes the same pressures create opposite outcomes.

What is true for the higher income, home-owning, less indebted group, can be reversed for the lower income, or non-home-owning, more indebted group. There are lots of these people too.

For them low interest rates and high asset prices has seen them take on masses of debt to buy a house. Alternatively they have found themselves unable to get on the property ladder and they are paying a lot in rent. Some may have been enjoying low credit to pad their lifestyle.

These people all share a common problem – they are at the limit of their capacity for debt and so they need the lowest cash cost for each service today. An annual bill instead of a monthly bill would wipe them out. They need a low excess because they cannot easily find another $500 for an excess or survive longer than four or eight weeks before an income protection benefit kicks in.