"We have seen significant premium inflation on insurance products and it is unsurprising to see further regulatory intervention on a product designed to support those who may not be able to pay in a single instalment."
- Darren Richards, head of Broadstone’s insurance, regulatory & risk division
The FCA has launched a new competition market study to see whether people who borrow to pay for motor and home insurance are receiving fair, competitive deals.
The FCA says it has undertaken a package of work in the insurance market "amid concerns about rising prices", alongside the launch of a Government motor insurance taskforce.
Premium finance allows people to pay for insurance in instalments. With the average yearly rate on the amount of money borrowed ranging between 20 to 30%, the FCA is concerned that premium finance may not be providing fair value. Over 20 million people are estimated to pay for their insurance this way and FCA research shows that 79% of adults in financial difficulty have used the product.
As part of its market study, the FCA will review whether the products represent fair value, how well customers are made aware of their financing options, the role of commission, and other potential barriers to effective competition in the motor and home premium finance market.
Graeme Reynolds, director of competition at the FCA, said: "People rely on premium finance to spread their insurance costs by paying in smaller monthly payments. We want to ensure that competition works well and make it easier for consumers to find the best deals."
Darren Richards, head of Broadstone’s insurance, regulatory & risk division, commented: “The FCA has continually re-iterated its commitment to ensuring customers are receiving fair value in the products they are buying. Many people are likely to be unaware that many of the insurance products they purchase on a monthly basis include a premium finance product and could therefore be more expensive.
“We have seen significant premium inflation on insurance products and it is unsurprising to see further regulatory intervention on a product designed to support those who may not be able to pay in a single instalment. While for many spreading out the cost on a monthly basis is helpful, insurers should be communicating the product terms simply and clearly so that customers can make an informed decision as well as providing fair value.”
