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Concerns about 'rip-off' vehicle and home insurance costs prompt FCA review

Concerns about 'rip-off' vehicle and home insurance costs prompt FCA review
Myra Butterworth
Written By:
Posted:
16/10/2024
Updated:
16/10/2024

Concerns about the cost of motor and home insurance have prompted an official review by the regulator.

The Financial Conduct Authority (FCA) is looking into whether people are receiving fair, competitive deals on their insurance.

In particular, it is looking at those who borrow money to pay for motor and home insurance.

This practice is known as premium finance and allows people to pay for their insurance in instalments.

The average yearly rate on the amount of money borrowed ranges from 20% to 30%, according to the FCA.

However, industry insiders say rates can be much higher, describing them as “excessive” and a “tax on being poor”.

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Rocio Concha, director of policy and advocacy of Which?, said: “Which? has been urging the FCA to take action to end the car insurance rip-off after finding motorists who can only afford to pay monthly are being charged excessive interest rates of up to 45%.

“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.”

Concha went on to call on the FCA to “get tough” with insurers that are falling short of their responsibilities to treat consumers fairly.

She said action was required if insurers were “failing to offer fair value when quoting or making the claims-handling process a nightmare for their customers”.

More than 20 million use premium finance for insurance

The FCA claims more than 20 million people are estimated to pay for their insurance using premium finance.

Its research suggests that 79% of adults in financial difficulty have used the product.

The review aims to find out how the cost of car and motor insurance can be reduced while maintaining appropriate levels of cover.

As part of its market study, the FCA will review whether the 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 in the motor and home premium finance market.

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.”