The UK Financial Conduct Authority (FCA) has initiated a market study focused on premium financing for motor and home insurance, aiming to determine if consumers are receiving competitive, fair deals.
This market study is relevant for a range of parties including:
- Current and potential suppliers of premium finance and other products that allow UK insurance customers to pay their policy premiums in instalments.
- Premium finance motor and home insurance customers.
Premium finance enables policyholders to spread insurance payments over time through installments. However, the FCA is concerned that the service may not offer adequate value, citing interest rates on borrowed amounts ranging from 20% to 30%.
The FCA noted that an estimated 20 mn people use premium finance to pay for insurance. Its research revealed that 79% of adults facing financial difficulties have turned to this product.
The FCA launched this market study because:
- Premium finance is an important product for many customers.
- We’ve been concerned about premium finance for some time.
- We’re concerned that premium finance may not represent fair value for some customers and that competition may not be functioning effectively.
- Rising premium prices may be making the situation worse.
The market study will assess whether premium finance products provide fair value, how well consumers understand their financing options, and the role of commissions in the overall competition of the market.
Graeme Reynolds, FCA’s director of competition, emphasized that consumers rely on premium finance to manage insurance costs. He highlighted the need for competition to ensure consumers can access the best deals.
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
Graeme Reynolds, FCA’s director of competition
The FCA is part of a government task force committed to stabilizing or reducing motor insurance premiums while maintaining sufficient coverage.
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.
In a separate development, the FCA also announced in August its intent to begin a market study on the sale of pure protection insurance products. This investigation, scheduled for later this year or 2025, aims to address concerns over whether competition is functioning effectively in that market.