Millions of insurance customers use 'premium finance' to pay for their cover in monthly instalments. From a new survey of 71 insurance firms, we can reveal which providers charge nothing for the privilege of splitting the bill – and those which attach annual percentage rates (APRs) resembling what you'd pay with an expensive credit card.
As well as showing the firms with the steepest and cheapest charges, we examine how rates have been changing in the last year, and how the industry could be set to change going forward.
Which insurance providers charge for paying monthly?
As the tables below show, all but three of the car insurers who responded charge extra for paying in instalments. By contrast, half of home insurance firms charge the same price whether you pay all at once or in monthly instalments.
Among firms that do charge, rates range widely – from 12% to over 30%.
How premium finance works
According to estimates by the Financial Conduct Authority, over 20 million customers use premium finance to buy insurance. It's available at the click of a button once you've received your insurance quote, but behind the scenes it's technically a kind of loan.
You borrow the annual premium from your insurer or a finance company working alongside it – and then repay the amount gradually across the year.
It consequently might not seem too out of place that the average APRs charged (22.84% for car insurance and 21.59% for home insurance) aren't too dissimilar to credit card rates on purchases. The average credit card rate is 35.42%, but the majority charge 24.90% APR or under.
Why we think rates are too high
However, there's a big difference when it comes to the amount of risk the lender takes on. If you default on your credit card payments, the lender may never get its money back. But if you stop paying for your insurance, the provider will cancel the policy, meaning it doesn't really 'lose' the full value of the unpaid part of your premium.
We think this makes the rates currently charged by many insurers difficult to justify – especially with car insurance, where a third of rates are above 25%.
Find out more:Highest interest rates are above 30%
As the tables show, The Insurance Factory levied the highest charges on monthly car insurance payers, while One Insurance Solution had the highest APRs for home insurance customers.
All of these highest-charging brands were connected to Markerstudy Distribution – a broker – or its parent organisation, Markerstudy Group.
How rates have changed
Pressure to improve
'It's like kicking customers when they are down'
Rocio Concha, Which? director of policy and advocacy, said: 'People often don't tend to pay for car and home insurance in monthly instalments out of choice, but financial necessity.
'For millions to be hit with excessive extra charges due to their circumstances seems like kicking customers when they are down, and this is exactly the kind of unfairness the regulator should have in its sights.
'Encouragingly, the FCA is now looking into this issue. As part of its market study, the regulator must get to the bottom of what fair rates of interest are by gathering information from firms on profit margins and commission levels, and ultimately be prepared to take tough action against firms continuing to charge excessively high rates of interest on monthly repayments.'
Support our campaign to end the insurance ripoff
Trust in insurers is low, and interest rates penalising those who can least afford it isn't doing much for the industry's case. We think this is just one way in which the insurance sector is in need of repair.
Find out more:source https://www.which.co.uk/news/article/monthly-car-and-home-insurance-prices-are-still-packing-a-premium-a9ZHP6j40LJN