New directive will require insurers to credit check policyholders who pay in instalments

Insurers face a bill for tens of millions of pounds when new European rules on credit checking come into force in three months' time. The ABI is lobbying the government to exploit a clause it claims could save insurers £50m a year.

Under the Consumer Credit Directive, all insurers will have to carry out mandatory credit checks on customers paying for insurance by monthly instalments, resulting in ‘significant costs’ to the industry.

To ease the burden, the ABI wants the Department for Business Innovation and Skills (BIS) to take advantage of an exemption clause within the directive that would stop instalment contracts being classed as ‘credit agreements’.

That would mean insurers would not have to seek out signed and returned credit agreements with the policyholder, and then file away the contract.

An ABI spokesman said: “Just to store them costs the industry about £50m a year.

“It’s really choppy in terms of who returns the documents. Then it’s also very hard to chase those customers who haven’t sent them back; there’s a huge administration cost to that.”

Speaking about the cost of the directive, the spokesman said: “We estimate it is going to be much more costly to us, and we can’t assess those costs until we’ve changed the systems before the deadline of February 2011.”

A BIS spokesman said it interpreted the directive differently to the ABI’s legal team.

However, it would consider changes as part of a review launched in July which examines the way customers enter into credit agreements.

A BIS spokesman said: “While we do not agree that the Consumer Credit Directive was intended to exempt insurance contracts paid by instalment, we are considering the issue of signed credit agreements as part of the Credit and Personal Insolvency Review. We will remain in touch with the ABI on this matter."