Which? calls for ban on insurers profiting from monthly payment ‘poverty premium’

Consumer advocacy organisation Which? has called on the government to ban insurers from profiting from the higher prices charged on monthly insurance payment plans – a practice it has branded a “poverty premium”.

The premium finance loan mechanism – utilised by an estimated 15 million UK customers annually – sees insurers lend policyholders the value of their yearly premium, so that the consumer can pay back the outstanding amount in smaller monthly payments, while still receiving the same level of cover.

Which? said that by charging excessive interest rates – found in some cases to be as high as 53% – on such loans, insurers risked burdening their least financially wealthy customers with up to an additional £370 in yearly cover costs.

Overall, the organisation said that it had identified five companies charging “extortionate” rates – defined as those considerably higher than a typical credit card’s APR – City Insurance (53%), UDrive Cover (50%), Sterling Insurance (38%), Rightsure (34%) and Acorn (33%).

Santander and the Post Office (both 26.5%) were also found to be charging somewhat higher interest rates than a typical credit card, while a further nine providers offered interest rates above 25% on their loans.

Government intervention

Which? also levelled criticism at the FCA, which it said had not intervened “nearly enough” to tackle the rising rates charged in a decreasingly competitive premium finance market.

This is despite concluding a two-year market study into the practice in March 2026, which did not recommend a price cap or ban.

As such, the group called on the government to step in to “ban motor insurers from charging extra for monthly payments, alongside introducing a requirement for motor insurers to offer a pay monthly option”.

This, it said, would “maintain access to this vital payment method while establishing a fairer and more competitive market that bears down on the total cost of insurance”.

Rocio Concha, director of policy and advocacy at Which?, said: “Too many consumers have already been pushed out of driving or into financial peril because of these unfair pricing practices that we’ve found can charge less wealthy customers more.

“Our latest investigation exposes the consequences of the regulator shying away from its responsibility to ensure competition works for consumers.

“The prime minister has pledged to create more breathing space for consumers and that’s why we’re urging him to use the upcoming budget to announce a ban on two-tier pricing for motor insurance. We believe it is the best way to create a fairer, more competitive system that doesn’t punish the customers least able to pay.”