People who pay monthly for their insurance are saving around
£157m a year, with over half the firms the Financial Conduct
Authority (FCA) reviewed as part of a market study lowering the
cost of premium finance.
Interest rates for premium finance have fallen by an average 4.1
percentage points since 2022, saving consumers £8 on a typical
motor policy and £3 on a typical home policy per year. The
changes result from regulatory attention, fair value assessments
and base rate reductions.
The FCA has seen even more significant changes made by firms it
identified as at highest risk of not providing fair value,
following direct engagement with them. These firms reduced APRs
by 7 percentage points on average – saving £14 on a typical motor
policy and £4 on a typical home policy per year.
Graeme Reynolds, director of competition and interim director of
insurance at the FCA, commented:
"For millions, paying for insurance monthly is not a choice: it's
a necessity. We found that competition in the market is meeting
the needs of many consumers. But where we found issues, we used
our Consumer Duty to get people fairer value, without needing to
write new rules.
"While we're not planning any market-wide changes, we won't
hesitate to act if firms fall short of our expectations as we
continue to monitor fair value."
In 2023, nearly half of motor and home insurance policies (about
23 million) were paid monthly, often because customers couldn't
afford annual payments.
The FCA has confirmed it will not introduce a price cap or
mandate that premium finance is provided without interest, as
this could restrict access to important cover for customers who
can only afford to pay monthly.
The regulator expects all firms to consider whether further
changes are needed to their premium finance offerings to meet
fair value requirements. To help them, it has shared examples of
good and poor practice seen across the premium finance market.
Notes to editors
- Read our final report and interim
report.
- The estimated savings for individual motor and home insurance
customers quoted above, £8 and £3 respectively, refer to
reductions in the average cost of premium finance from £49 to £41
(2022 vs 2026) for motor and £18 to £15 for home (2022 vs 2026).
Savings are calculated using representative motor and home
premiums of £400 and £220 respectively.
- Since the Consumer Duty came into force in 2023, firms have
been required to undertake fair value assessments to demonstrate
if the price a consumer pays for a product or service is
reasonable compared to the overall benefits they can expect to
receive.
- We have previously provided good and poor practice
on fair value assessments with further examples in the
full report.
- Read our blog on fair value.
