Premium finance market study final report

Falling cost of premium finance saving consumers around £157m a year

People who pay monthly for their insurance are saving around £157m a year, with over half the firms the Financial Conduct Authority (FCA) reviewed as part of a market study lowering the cost of premium finance.

Interest rates for premium finance have fallen by an average 4.1 percentage points since 2022, saving consumers £8 on a typical motor policy and £3 on a typical home policy per year. The changes result from regulatory attention, fair value assessments and base rate reductions.  

The FCA has seen even more significant changes made by firms it identified as at highest risk of not providing fair value, following direct engagement with them. These firms reduced APRs by 7 percentage points on average - saving £14 on a typical motor policy and £4 on a typical home policy per year.

Graeme Reynolds, director of competition and interim director of insurance at the FCA, commented:

'For millions, paying for insurance monthly is not a choice: it's a necessity. We found that competition in the market is meeting the needs of many consumers. But where we found issues, we used our Consumer Duty to get people fairer value, without needing to write new rules.

'While we're not planning any market-wide changes, we won't hesitate to act if firms fall short of our expectations as we continue to monitor fair value.'

In 2023, nearly half of motor and home insurance policies (about 23 million) were paid monthly, often because customers couldn't afford annual payments.

The FCA has confirmed it will not introduce a price cap or mandate that premium finance is provided without interest, as this could restrict access to important cover for customers who can only afford to pay monthly.

The regulator expects all firms to consider whether further changes are needed to their premium finance offerings to meet fair value requirements. To help them, it has shared examples of good and poor practice seen across the premium finance market.

Notes to editors  

·      Read our final report and interim report.  

·      The estimated savings for individual motor and home insurance customers quoted above, £8 and £3 respectively, refer to reductions in the average cost of premium finance from £49 to £41 (2022 vs 2026) for motor and £18 to £15 for home (2022 vs 2026). Savings are calculated using representative motor and home premiums of £400 and £220 respectively.

·      Since the Consumer Duty came into force in 2023, firms have been required to undertake fair value assessments to demonstrate if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive.  

·      We have previously provided good and poor practice on fair value assessments with further examples in the full report.  

·      Read our blog on fair value.