A review into whether people who borrow to pay for motor and home insurance are receiving fair and competitive deals has been launched by the City regulator.
The Financial Conduct Authority (FCA) announced a competition market study amid concerns about rising prices, alongside the launch of a new 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% and 30%, the FCA is concerned that premium finance may not be providing fair value.
More than 20 million people are estimated to pay for their insurance this way and FCA research indicates that around four-fifths (79%) of adults in financial difficulty have used the product.
During its market study, the FCA will review whether 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.
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.”
Rocio Concha, director of policy and advocacy at Which?, said the consumer group’s research found some motorists who pay monthly are being charged interest rates of up to 45%.
She said: “The regulator’s premium finance market study is a positive step and must lead to action that ends this unjust ‘tax on being poor’ for motorists.
“The FCA should also get tough with insurers that are falling short of their responsibilities under the Consumer Duty by failing to offer fair value when quoting or making the claims handling process a nightmare for their customers.”
The Government has also announced a taskforce, which includes the FCA, to identify any actions that may stabilise or reduce motor insurance premiums, while maintaining appropriate levels of cover.
The regulator will analyse the causes of increased costs in motor insurance and will look at factors affecting different types of claim.
It will also analyse the impact of rising insurance prices on different customer groups, such as younger and older drivers and people from ethnic minority backgrounds or on lower incomes.
Insurance bodies are meeting ministers and consumer groups on Wednesday.
We’re aware just how tough the last couple of years have been for motorists and we have been working hard with our members to tackle the cost of claims that impact on premiums
Hannah Gurga, Association of British Insurers
The Association of British Insurers (ABI) and the British Insurance Brokers’ Association (Biba) are among those invited to the meeting, as well as Citizens Advice, Which? and comparison service Compare The Market.
Labour’s general election manifesto pledged to “support drivers by tackling the soaring cost of car insurance”.
Surges in inflation, with rises in labour costs and raw materials are among the factors which have pushed up costs for insurers in recent years.
ABI director-general Hannah Gurga said: “We’re aware just how tough the last couple of years have been for motorists and we have been working hard with our members to tackle the cost of claims that impact on premiums.”