The Financial Conduct Authority (FCA) has introduced a series of initiatives in response to growing concerns about rising insurance prices, coinciding with the launch of the government’s motor insurance taskforce.
The FCA has commenced a competition market study to examine whether consumers who use credit to pay for motor and home insurance are accessing fair and competitive deals. Premium finance, which allows customers to pay in instalments, typically carries annual interest rates between 20% and 30%.
The FCA has raised concerns about whether this option offers fair value, particularly as over 20 million people reportedly use premium finance to manage their insurance payments. FCA data indicates that 79% of adults facing financial difficulty have relied on this product.
The market study will focus on several key areas, including whether premium finance products deliver fair value, how well customers understand their financing options, the role of commission, and other potential factors affecting competition within the motor and home insurance markets.
Graeme Reynolds (pictured above), director of competition at the FCA, noted that premium finance enables consumers to spread the cost of their insurance through monthly instalments.
“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,” he said.
The government's new motor insurance taskforce, which includes the FCA, aims to explore potential measures to stabilise or reduce motor insurance premiums while maintaining adequate coverage for drivers.
The FCA's role will involve examining the factors contributing to increased motor insurance costs, including claims-related expenses and the claims handling process.
Additionally, the regulator will assess the impact of rising premiums on various customer segments, including younger and older drivers, as well as individuals from ethnic minority backgrounds and those on lower incomes.
Darren Richards, head of Broadstone’s insurance, regulatory & risk division, commented on the FCA’s continued focus on ensuring customers receive fair value from the products they purchase.
“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,” he said.
Richards also noted that while spreading insurance costs monthly is beneficial for some consumers, insurers must ensure the terms of these products are communicated clearly, allowing customers to make informed decisions and ensuring the products provide fair value.
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