Premium finance costs for motor and home insurance have decreased over the past year, according to a new analysis by Pearson Ham. However, the report noted significant variability in charges, highlighting ongoing challenges for consumers, particularly as the Financial Conduct Authority (FCA) intensifies its scrutiny of premium finance practices.
The FCA recently launched a market study on premium finance, citing concerns about the fairness of these costs for consumers. Rising premiums, the regulator highlighted, may be exacerbating the issue, making it critical to address potential market imbalances.
Pearson Ham’s analysis revealed that the average cost of paying motor insurance in monthly instalments dropped from 11.9% in October 2023 to 10.7% in September 2024. Similarly, home insurance premium finance costs decreased from 10% to 8.3% over the same period.
Despite these reductions, Pearson Ham reported significant variability in premium finance charges across providers. For motor insurance, the interest rate on premium finance ranged from 1.9% to 20.2%, while home insurance products exhibited even greater divergence. Some companies, such as Sky Protect and John Lewis, offered premium finance with no additional charges, while others imposed fees as high as 36.8%.
Stephen Kennedy, director at Pearson Ham, acknowledged the complexity of the premium finance landscape. “While costs to consumers are beginning to ease, the level of variability may still be considered a challenge, potentially leaving some consumers exposed to disproportionately high charges,” he said.
In addition to interest rates, premium finance providers typically require an initial deposit or payment. The average upfront payment for motor insurance in September 2024 decreased slightly to 12.7%, down from 13.6% the previous year. For home insurance, deposit requirements also saw a minor reduction, averaging 10.8%, compared to 11.7% in October 2023.
However, Pearson Ham’s data revealed that deposit requirements still fluctuate widely. For motor insurance, the highest deposit charged was 33%, while the lowest was 8.3%. Similarly, for home insurance, deposits ranged from 7.9% to 25%.
The analysis also highlighted a general downward trend in the cost of paying by instalments for both motor and home insurance throughout 2024. Major insurers, including AXA and First Central, have reduced their charges in response to increased regulatory scrutiny and competitive pressure. New entrants in the home insurance market have introduced products priced below the market average.
Pearson Ham’s General Insurance Price Index showed that motor insurance premiums in September 2024 were 8.5% lower than in September 2023. Conversely, home insurance premiums saw a sharp rise, increasing by 22.5% compared to the same period the previous year.
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