The UK’s financial regulator is to review Britain’s premium finance market amid worries that consumers who borrow to pay for insurance may not be getting fair or competitive deals.
Its probe comes alongside further work announced by the Financial Conduct Authority (FCA) on rising motor insurance prices.
The FCA said it feared some premium finance providers may not be offering fair value to consumers, particularly those already in financial difficulty.
Premium finance allows more than 20m people in the UK to take out a third-party instalment loan to pay for insurance products like motor and home. Its use has increased as the cost of basic insurance policies has risen.
The FCA said it was concerned that the sector may not be providing fair value, given the average yearly rate on the amount of money borrowed ranging between 20 per cent and 30 per cent.
More than three-quarters (79 per cent) of adults in financial difficulty have used the product, according to FCA research.
“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,” said Graeme Reynolds, director of competition at the FCA.
Within its so-called competition market study, the FCA said it would review how well customers are made aware of their financing options and the role of commission in their transactions.
Government insurance taskforce
Separately, the FCA announced on Wednesday it would analyse the causes of higher motor insurance costs and “look closely” at claims costs as part of a new taskforce assembled by the government.
The taskforce – comprising regulators, motoring groups, insurers and consumer groups – aims to stabilise or reduce motor insurance premiums, which FCA analysis shows have grown by an average of 21 per cent since June 2022.
The FCA added that it would analyse the impact of rising insurance prices on different customer groups, like younger and older drivers, as well as those from ethnic minority backgrounds or on lower incomes.
“Car insurance is an essential, not a luxury. It is vital to accessing economic opportunities and this government is committed to getting costs under control,” said transport secretary Louise Haigh.
“The rising cost of cover affects all drivers but some groups have been hit harder than others.”