UK Financial Conduct Authority Launches Premium Finance Market Study Alongside New Government Insurance Taskforce

The FCA has launched a review, known as a competition market study, to see whether people who borrow to pay for motor and home insurance are receiving fair, competitive deals.

Premium finance allows people to pay for insurance in instalments. With the average yearly rate on the amount of money borrowed ranging between 20 to 30%, the FCA is concerned that premium finance may not be providing fair value. Over 20 million people are estimated to pay for their insurance this way and FCA research shows that 79% of adults in financial difficulty have used the product.

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.'

FCA responds to Government motor insurance taskforce

The Government has announced a taskforce, which includes the FCA, with the aim of identifying any actions that may stabilise or reduce motor insurance premiums, while maintaining appropriate levels of cover.

The FCA will analyse the causes of increased costs in motor insurance and will look closely at claims costs, reviewing claims handling arrangements and factors impacting different types of claim. The regulator will also analyse the impact of rising insurance prices on different customer groups, such as younger and older drivers and those from ethnic minority backgrounds or on lower incomes.

Background  

• Read the market study terms of reference.
• The FCA expects to publish an interim report following the market study and proposed next steps during H1 2025.
• The FCA has previously written to the insurance industry (PDF) regarding premium finance products with high APRs but low credit risk.  
• In April 2024, the FCA finalised the introduction of new guidance for firms on supporting borrowers in financial difficulty, including premium finance customers.  
• The estimate for the number of people paying for insurance monthly and % of customers in financial difficulty is from the FCA’s Financial Lives Survey 2022 key findings report (PDF) (see page 85).