The Financial Conduct Authority (FCA) has announced a package of
work in the insurance market amid concerns about rising prices,
alongside the launch of the Government motor insurance taskforce.
The FCA has launched a review, known as
a competition market study, to see whether people who borrow to
pay for motor and home insurance are receiving fair, competitive
deals.
Premium finance allows people to pay for insurance in
instalments. With the average yearly rate on the amount of money
borrowed ranging between 20-30%, the FCA is concerned that
premium finance may not be providing fair value. Over 20 million
people are estimated to pay for their insurance this way and FCA
research shows that 79% of adults in financial difficulty have
used the product.
As part of its market study, the FCA will review whether the
products represent fair value, how well customers are made aware
of their financing options, the role of commission, and other
potential barriers to effective competition in the motor and home
premium finance market.
Graeme Reynolds, director of competition at the FCA,
said:
‘People rely on premium finance to spread their insurance costs
by paying in smaller monthly payments. We want to ensure that
competition works well and make it easier for consumers to find
the best deals.'
FCA responds to Government motor insurance
taskforce
The Government has announced a taskforce, which includes the FCA,
with the aim of identifying any actions that may stabilise or
reduce motor insurance premiums, while maintaining appropriate
levels of cover.
The FCA will analyse the causes of increased costs in motor
insurance and will look closely at claims costs, reviewing claims
handling arrangements and factors impacting different types of
claim. The regulator will also analyse the impact of rising
insurance prices on different customer groups, such as younger
and older drivers and those from ethnic minority backgrounds or
on lower incomes.
Notes to editors
- Read the market study terms of reference.
- The FCA expects to publish an interim report following the
market study and proposed next steps during H1 2025.
- The FCA has previously written to the insurance
industry regarding premium finance products with high APRs but
low credit risk.
- In April 2024, the FCA finalised the introduction of
new guidance for firms on
supporting borrowers in financial difficulty, including premium
finance customers.
- The estimate for the number of people paying for insurance
monthly and % of customers in financial difficulty is from the
FCA's Financial Lives Survey 2022 key findings report (see
page 85).
