Drivers are set to benefit from fairer insurance prices as a review into the huge cost hikes gets underway by the UK finance regulator.
The Financial Conduct Authority (FCA) has launched a comprehensive review of car insurance premium finance after growing concerns over rising prices and fair value for consumers.
This move comes as part of a broader package of work in the insurance market, coinciding with the establishment of a Government motor insurance taskforce.
The FCA's review, known as a competition market study, aims to investigate whether individuals who borrow to pay for motor and home insurance are receiving fair and competitive deals.
Do you have a story you'd like to share? Get in touch by emailingmotoring@gbnews.uk
20 million people use premium finance to spread their insurance costs
GETTYWith over 20 million people estimated to use premium finance to spread their insurance costs, the regulator said it was particularly concerned about the high annual percentage rates, which can reach up to 30 per cent in some cases.
Premium finance is a specialist form of credit offered to insurance customers, allowing them to spread the annual upfront cost of their policy over time, typically in monthly instalments.
The FCA's review is part of its wider portfolio of work on motor insurance, which includes an evaluation of general insurance pricing practices and a review of motor insurance business models.
In response to the Government's announcement of a motor insurance taskforce, the FCA will play a crucial role in analysing the causes of increased costs in motor insurance.
The regulator will closely examine claims costs, reviewing claims handling arrangements and factors impacting different types of claims. The FCA expects to publish an interim report and proposed next steps during the first half of 2025.
This timeline allows for a thorough investigation of the premium finance market and its impact on consumers. The outcome of this review could have significant implications for both drivers and the insurance industry.
Potential changes may include stricter regulations on premium finance products, improved transparency in pricing, and measures to enhance competition in the market.
These changes could lead to fairer deals for consumers and potentially lower costs for those who rely on premium finance to afford their insurance.
According to the FCA, millions of adults in the UK pay for one or more insurance policies using this method.
While some providers charge the same total amount regardless of payment method, most cases of premium finance result in higher overall costs due to credit charges.
The FCA estimates that outstanding premium finance loan balances exceeded £5billion in 2022, generating up to £1.2billion in revenues for providers. With recent increases in motor and home insurance premiums, coupled with the cost of living crisis, more customers are turning to premium finance to ease financial pressures.
The FCA's market study will investigate several key areas of concern in the premium finance market.
LATEST DEVELOPMENTS:
FCA to investigate motor insurance policies
GETTYThese include assessing whether the products represent fair value, examining how well customers are informed about their financing options, and scrutinising the role of commission.
The regulator will also explore potential barriers to effective competition in the motor and home premium finance market.
Graeme Reynolds, director of competition at the FCA, stated: "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."