FCA not planning any market-wide action on premium finance as policyholders save £157m

The FCA has confirmed it is not planning any market-wide action on premium finance, with the regulator finding that people who pay monthly for their insurance are saving around £157m a year.

According to the FCA, 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 regulator added that it saw 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 annual percentage rates (APRs) by seven percentage points on average – saving £14 on a typical motor policy and £4 on a typical home policy per year.

Given these improvements and that premium finance is popular with consumers – about 23 million of motor and home insurance policies were paid monthly in 2023 – the FCA confirmed it will not introduce a price cap or mandate that premium finance is provided without interest.

“This could restrict access to important cover for customers who can only afford to pay monthly,” the FCA said.

’Weak response’ 

Graeme Reynolds, director of competition and interim director of insurance at the FCA, added: ”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.”

The regulator added that it expects all firms to consider whether further changes are needed to their premium finance offerings to meet fair value requirements.

However, Rocio Concha, Which? director of policy and advocacy, described the FCA’s response as “weak”.

Concha said: “For too long, car and home insurance customers who can’t afford to pay for cover all in one go have been stung by excessive rates of interest that have seen their overall cost soar. They have been let down by this weak response from the FCA.

“Despite it being two-and-a-half years since the introduction of the Consumer Duty, and previously calling premium finance ‘a tax on being poor’, the regulator has decided just to warn a few bad apples, rather than fundamentally tackling the issue.

“The regulator must hold the sector to account to ensure the motor and home insurance markets work more fairly for customers who cannot afford to pay for their premiums all in one go.”