In publishing the details of research, Which? has conducted into the cost of insurance instalment facilities in the home and motor insurance markets, Which? is urging the FCA to publish a league table of the ‘best and worst’ providers (purely from an APR perspective) of insurance instalments every six months, and to take action against those found to be charging unfairly high amounts of interest. Although the research publication refers to ‘premium finance’, it is not commenting on and does not include third-party premium finance providers (e.g., Premium Finance and Close Brothers) used by many insurance intermediaries.
In March, Which? contacted 39 car insurance providers and 34 home insurance providers. Not all were insurers.
- In most instances, one figure was provided by the firms, while some firms provided a range.
- The article perhaps deflects attention away from third-party premium finance providers and helps to challenge a view that, from a fair value and customers’ best interests perspective, “the insurer’s instalment facility will always be cheaper”, although not all of the providers responding are insurers.
- Some firms did not provide figures for one (three firms) or both (six firms) of the options (home or motor).
- Six firms indicated that there is no instalment charge for home insurance, but that there is a charge for motor insurance instalments.
- Two firms reported that there is no charge for either home or motor, with seven reporting that there was no charge for home insurance and that motor was ‘n/a’ (motor insurance perhaps not offered).
Matt Brewis, the FCA’s Insurance Director, when speaking to the Finance Treasury Committee last week, has raised concerns that taking action on premium finance would have little or no impact on the overall price of motor cover. He described premium finance as an “essential product” for people who cannot pay their insurance premiums in one amount. He noted that just over 50% of motor insurance policyholders pay monthly, with that figure being in the region of 60% for home insurance.
His concern is founded in the credit risk of the product, which he believes is very low. If policyholders cannot pay for their insurance, the insurance can be cancelled, ending the insurer’s liability under the insurance contract if the insurer is providing the facility itself or with any premium refund being used to clear most or all of any outstanding finance. This is possibly a veiled attack on higher interest rate / APR insurance instalment facilities.