Motor insurance affordability under pressure amid FCA scrutiny

Motor insurance premiums have more than doubled over the past decade, according to February 2025 data from market research firm Consumer Intelligence, with affordability becoming a key issue for consumers.

And while prices have started to come down in recent months – with Consumer Intelligence noting that average quoted car insurance premiums fell by 6% in past three months – pressure on premiums remains high due to increasing claims costs, the rising expense of regulatory compliance and severe supply chain disruptions.

Against this backdrop, the FCA has been ramping up scrutiny over premium finance and commission structures, while the Labour government’s motor insurance taskforce – established in October 2024 to tackle high car insurance premiums – continues to face a number of setbacks.

Supreme Court motor finance case and the potential fallout for insurance

A Supreme Court case on motor finance, an appeal against a Court of Appeal decision that is due to be heard in April 2025, threatens to have wider implications for the insurance market – particularly in terms of commission transparency and premium finance charges.

The case – which involves Close Brothers and FirstRand Bank – stems from allegations of undisclosed commissions and unfair pricing structures, raising questions about similar practices in insurance.

James Daley, managing director at consumer group Fairer Finance, noted that while initial market-wide concerns suggested that this case could spill over into the insurance sector, government intervention may prevent this from ever fully happening.

“When the Court of Appeal ruling came out [in October 2024], there was a concern that it could have a contagion and an impact on sectors where commissions are not disclosed up front to customers, which would include insurance,” he explained.

“It’s not impossible that that [could happen], but the chancellor [of the exchequer Rachel Reeves] has indicated that she wants to stop this from turning into another mass redress scandal and even indicated that she’s got an appetite to legislate to prevent it.”

Following Insurance Times’ initial conversation with Daley, the Supreme Court rejected Reeves’ bid to intervene in the case on 17 February 2025. HM Treasury had applied to submit evidence.

That said, Daley emphasised that commission transparency remains a key regulatory focus and that the FCA is likely to push for more disclosure requirements across financial products.

“Commission is under the spotlight – not just because of the motor finance case, but also due to the ongoing protection market study,” he said.

“I do think we’re going to see some clarity from the FCA in terms of its expectations around commissions this year, once the Supreme Court case is out of the way.

“This issue isn’t necessarily going to go away and we probably will end up with a world where there’s going to be a greater level of disclosure required than there is now.”

The FCA’s MS24/1.1: Pure Protection Market Study launched last August, with stakeholders invited to submit their views by 11 October 2024.

This aimed to investigate how pure protection insurance products are sold after the regulator raised concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders.

‘Dodgy practices’

While Daley believes government intervention will prevent major market disruption, Claire Carpenter, director of regulation and assurance at insurance professional services firm GreenKite, sees the motor finance case as a catalyst for deeper FCA scrutiny.

“There are some dodgy practices going on in premium finance,” Carpenter told Insurance Times.

“Some providers claim to offer 0% finance but then add loading costs. They procure the finance from their premium finance provider, then they load their own costs in there and then apply it with all customers, whether they take finance or not.”

Carpenter said there are also cases where annual percentage rates (APRs) are being hugely inflated, particularly in high end car dealerships, and high commissions being added by original equipment manufacturers (OEMs), which flies in the face of the FCA’s 2021 fair value requirements.

“Trying to justify those were impossible,” she explained. “There were a couple of projects where I refused to fulfil because they weren’t forthcoming [on their disclosures].”

But despite prior FCA activity on this commission disclosure issue, momentum appears to have stalled, according to Carpenter. She questioned whether the regulator is first waiting for further information to come out of the motor finance case this spring.

“The FCA has gone quiet – I think [it] asked for so much information that [it is] still processing it,” she said.

“And because of the direct correlation between [insurance broking commissions] and the Supreme Court case, I wonder whether [the FCA is] looking at the two in tandem.”

Labour’s motor insurance taskforce: A stalled initiative?

As part of an election promise last summer to tackle affordability concerns, the Labour government established a motor insurance taskforce in October 2024 – a few months after getting into office in July.

However, there has been little progress made to date on this body, with meetings seemingly stalled – the taskforce has reportedly only met once since being launched.

Meanwhile, both ministers charged with leading the taskforce have also been forced to resign following a series of controversies since coming to power.

Former transport secretary Louise Haigh resigned in November 2024 after she pleaded guilty to fraud relating to a stolen mobile phone more than a decade ago.

And Tulip Siddiq resigned as treasury minister in January 2025 after she was named in an investigation claiming that her family in Bangladesh had embezzled up to £3.9m.

She has repeatedly denied any wrongdoing in the matter and has been cleared of breaking any ministerial rules, but said in her resignation letter than continuing in her role “is likely to be a distraction from the work of government”.

With both ministers now gone and no clear replacements named, some industry commentators have questioned whether the taskforce even has a future. Carpenter is one of those that is concerned the taskforce may have already seen its end.

“One of my clients, a Labour member, said they think [the taskforce] is going to die a death and [the government will] just move on to other financial reforms,” she stated.

Daley echoed concerns over the lack of the taskforce’s progress, but he remained cautious about writing it off entirely.

“Louise Haigh was a key driver behind it and for her successor [as transport minister, Heidi Alexander], it has perhaps not been one of her top priorities,” he said. “But I’ve not heard that it’s being scrapped or kicked into the long grass.

“I think people would be quite upset if it now just evaporated because although insurance prices have started to fall, they’re still very high and these affordability problems are still there for many parts of the market.

“The broader issue about the affordability [of] motor insurance hasn’t gone away. It still needs to be looked at.”

No clear cut answer

While political efforts to drive affordability reforms for motor insurance remain uncertain, insurers are grappling with their own challenges as they try to balance rising costs with competitive pricing.

Analysis from Insurance DataLab conducted for this article showed that motor insurers have only been profitable in one year of the last five – and Carpenter warned that regulatory burdens are exacerbating the cost pressures on insurers, making it even harder to keep premiums affordable.

“The expense of doing all of these fair value assessments and [adhering to] Consumer Duty is absolutely having an impact [on affordability],” she said. “The amount of extra staff and external consultants insurers are having to employ is adding a huge burden of cost.”

Looking at possible moves forward, Daley suggested a greater push for transparency and potential structural changes in pricing models.

“I’ve never really supported premium finance because it ends up being a penalty and often on the people who can least afford it,” he argued.

“You could force all insurers to accept people paying in instalments at no extra cost, but there’d obviously be a cost to that and it would have to be passed on [to consumers].

“But I still think you could argue that’s fairer than charging the poorest people this extra penalty. If that cost is 3%, then maybe we all decide that it’s better that everybody collectively pays 3% more than the poorest people pay 20% more.”

So, while motor insurance prices have started to fall, the road to long-term affordability remains uncertain.

With FCA interventions, potential regulatory changes and market forces all at play, insurers, regulators and policymakers must navigate a complex landscape to ensure fair and accessible coverage for all consumers.