Now, the Financial Conduct Authority (FCA) is launching an investigation into whether pay monthly car and home insurance customers are getting a fair deal.
Here, we explore why premium finance is being dragged into the spotlight, whether it's likely to help with your premiums, and what further action is being taken around car insurance costs.
How premium finance works
It takes a click of a button to opt for finance, but behind the scenes it can involve complex arrangements between insurers, intermediaries (such as brokers) and lenders.
According to the FCA's figures, premium finance interest rates tend to range between 20% and 30% APR (Annual Percentage Rate).
These rates are broadly comparable with credit card rates. However, insurers arguably face far less risk when offering premium finance than a credit card provider or bank does in lending cash. This is because if an insurance customer fails to keep up their payments, the insurer can cancel their policy.
The FCA's market study
The FCA has previously voiced misgivings about whether premium finance, which is necessary to many customers, is offering policyholders 'good outcomes'. It's now launching a study to investigate competition in the market.
It says it is launching the study because of potential concerns about the interest rates and charges customers pay, and whether these represent fair value compared to the cost and risk taken on by insurers and companies that provide finance.
The regulator will gather and analyse information from insurers, intermediaries and specialist premium finance providers, and says it will publish a followup report in the first half of next year.
What could follow the market study?
How the FCA proceeds following the study will depend on whether it finds harm, what kind, and what actions it thinks appropriate to redress it.
Measures it can take includes creating new rules, publishing new guidance, engaging with firms individually or taking enforcement action.
Previous enforcement action
And in 2022, the regulator banned insurers from charging existing customers higher prices than new customers. This practice is known as 'price walking' and was causing millions of customers to lose out if they renewed repeatedly with one insurer.
Sky-high interest rates
'An ethical approach'
In September, in response to our research, Dr Matt Connell of the Chartered Insurance Institute, commented: 'If customers see that insurers are not pricing their products on the basis of risk, but on the extent to which they can exploit consumers' unwillingness to shop around, trust in every aspect of insurance will decline, leading many people to decide not to buy cover at all, with potentially disastrous results.'
He added that 'charging high rates of interest with no reasonable justification is not compatible with an ethical approach.'
'This must lead to action'
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.'
Car insurance premiums taskforce
The FCA's investigation is part of a package of measures announced yesterday. The Department for Transport has also launched a taskforce to tackle the 'spiralling costs of car insurance'.
Forming part of the government's manifesto commitment to act on the high cost of insurance for drivers, the taskforce brings together industry groups and consumer champions such as The Association of British Insurers, Citizens Advice, Which?, Compare the Market and the FCA.
The taskforce has been formed to identify the factors behind rapidly rising premiums and to agree solutions to keep costs under control. It will also examine the effect of high prices on particular groups of drivers, such as young and older people and those from ethnic minority backgrounds or on lower incomes.
Find out more:Support our campaign to end the insurance ripoff
Premium finance is one area in which we think insurers are failing to deliver value to customers. But we're also campaigning for wider change.
We want to see greater fairness and transparency ranging from what customers pay to how they're treated should they claim.
So far, over 73,000 people have joined us in demanding action by signing our petition.
Find out more:Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665 and is an Introducer Appointed Representative (FRN 610689) of the following:
1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd.
2. LifeSearch Partners Limited (FRN656479), for the introduction of Pure Protection Contracts and Private Health Insurance, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts and Private Health Insurance Contracts. LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386.
3. HUB Financial Solutions, for the introduction of equity release advice, who are authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide advice and guidance on financial products for those who have retired or are approaching retirement (FCA Firm Reference Number: 455713). HUB Financial Solutions is registered in England and Wales to Enterprise House, Bancroft Road, Reigate, Surrey RH12 7RP, company number 05125701.
4. Alan Boswell Insurance Brokers Ltd (FRN 301), for the introduction of non-investment landlord insurances, who are authorised and regulated by the Financial Conduct Authority to provide advice and arrange insurance contracts. Alan Boswell insurance brokers Ltd is registered in England at Prospect House, Rouen Rd, Norwich NR1 1RE, company number 02591252.
Other financial services:
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ. London & Country are authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
We do not make, nor do we seek to make, any recommendations or personalised advice on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners.
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source https://www.which.co.uk/news/article/pay-monthly-car-insurance-premiums-brought-under-the-spotlight-aKnH01W3KBnk