’Typically, when firms charge extra for premium finance, the annual percentage rates are in the range 20-30% but almost 20% of consumers pay over 30%,’ says regulator
The FCA has found that some firms earn much more money than it costs to provide premium finance.
Today (22 July 2025), the regulator issued interim update of the ongoing market study investigating whether consumers receive fair value when choosing to pay for insurance in monthly instalments.
Beginning in October 2024, the regulator said it would review whether motor and home insurance customers using the product were getting competitive deals.
In its update, the FCA said that there is “wide variation” in the rates firms charge for paying by instalments, with significant differences according to how the insurance is distributed.
“Typically, when firms charge extra for premium finance, the annual percentage rates (APRs) are in the range 20-30% but almost 20% of consumers pay over 30%,” the regulator added.
It added that all firms offering premium finance incur some operational costs, for instance staff, IT and compliance.
“Despite these costs, where firms charge for premium finance, revenues appear to materially exceed costs for some providers,” the FCA said.
“Whereas the profit margin earned on a core insurance policy may be relatively low, we see margins on premium finance that are somewhat higher.”
“Different business models will have different ways of recovering costs. In some cases, they recover all costs through the insurance product itself, or recoup returns on lower margin insurance product through higher APRs.”
Margins
The FCA also revealed that it saw premium finance margins ranging between 14% to 62% across insurers, intermediary lenders, intermediary brokers and specialist premium finance providers (SPFPs) between 2018 and 2023.
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SPFPs averaged the lowest margins out of these four, with a weighted average margin of 24%, while insurers had the highest weighted average margins of 53%.
However, in 2023, intermediary brokers had the highest margin of 36% due to the other cohorts facing squeezed margins from higher funding costs.
The FCA said: “While premium finance allows customers to spread costs, making them affordable and providing flexibility, the regulator has found that some firms earn much more money than it costs to provide it.
“It will explore these concerns further in the next phase of the study and will seek to tackle any issues it finds first through the Consumer Duty, publishing a final report by the end of 2025.”
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