Today, the Association of British Insurers (ABI) unveiled new guidelines aimed at standardising the fees charged to consumers opting for monthly payments on their motor insurance.
Centred on five key aspects – transparency, affordability, fair value, proportionality, and accountability – the Premium Finance Principles outline the ABI’s commitment to equitable practices in premium financing.
Under the guidelines, firms are urged to disclose with clarity the charges and costs associated with monthly payments – including those incurred by the insurer for providing the option – while comparing them with the annual figures.
The ABI explained: “Monthly administration of payment and reporting requirements on insurers for finance agreements are direct costs, but other factors also impact.
“If a customer is paying monthly and they miss a payment, the insurer continues to provide cover (without having been paid for it) until the missed payment is received or the policy is cancelled.
“Furthermore, if a customer chooses to pay annually, the sum of money is made immediately available to the insurer who can then invest this into their business and help maintain enough funds to pay out claims and keep premiums lower.”
The principles also aim to ensure that the charges are reasonable and are regularly reviewed. The focus on premium finance is part of the motor insurance costs action plan that was released by the trade body in February.
“The principles announced today are one of a raft of actions we are taking to tackle the cost of motor insurance, which we know is putting pressure on households, especially those on lower incomes,” said director Mervyn Skeet (pictured), head of general insurance policy at the ABI.
“We are doing all that we can within our reach as a trade body for insurers and hope that other organisations involved with premium finance follow our lead.”
The principles were developed after discussions with various stakeholders, including brokers and third-party finance providers, ensuring widespread support within the industry.
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