Many of us opt for monthly payments for car and home insurance, often due to rising premiums making upfront costs unaffordable. However, this choice can cost hundreds more annually due to high-interest rates attached to these plans. Now, the Financial Conduct Authority (FCA) is stepping in, launching an investigation to ensure customers are getting a fair deal on premium finance.
The Issue with Pay-Monthly Insurance
Over 20 million people pay for their insurance in instalments, often entering premium finance agreements that come with interest rates between 20% and 45% APR. These rates are comparable to credit card charges but may not reflect the lower risk insurers face. For example, if a customer defaults, the insurer can simply cancel the policy, reducing their exposure compared to traditional lenders.
The FCA is concerned these high rates represent poor value for customers, especially for vulnerable individuals who often rely on monthly payments. Rising premiums have exacerbated this issue, forcing more people into costly finance arrangements.
FCA Action & What It Means for You
The FCA’s investigation will scrutinise whether the charges for premium finance are fair, considering the costs and risks to insurers. Potential outcomes could include new rules, guidance, or even enforcement actions against firms found to be exploiting customers. This follows the FCA’s previous interventions, such as banning “price walking” in 2022, where loyal customers were charged more than new ones.
A Broader Push for Fairness
Rocio Concha, Which? director of policy and advocacy (pictured above), says:
“Which? has been urging the FCA to take action to end the car insurance rip-off after finding motorists who can only pay monthly are being charged excessive interest rates of up to 45%. The regulator’s premium finance market study is a positive step and must lead to action that ends this unjust “tax on being poor” for motorists.
The FCA should also get tough with insurers that are falling short of their responsibilities under the Consumer Duty by failing to offer fair value when quoting or making the claims handling process a nightmare for their customers.”
The FCA’s study is part of a larger effort to address skyrocketing insurance costs. Alongside this, the Department for Transport has formed a taskforce to tackle high premiums, particularly for vulnerable groups like young drivers and those on low incomes. This initiative aims to bring transparency and fairness to an industry that has faced criticism for prioritising profits over customer welfare.
Join the Campaign for Change
Over 73,000 people have already signed a petition demanding an end to these unfair practices. Which? is leading the charge for greater fairness, transparency, and affordability in insurance. Together, we can push for meaningful change that protects all customers, not just those who can pay upfront.