The UK Financial Conduct Authority (FCA) has initiated an examination of the country’s premium finance market.
This move comes amid concerns that individuals who finance their motor and home insurance payments might not be benefitting from equitable or competitive terms, especially as sector-wide prices escalate.
In the UK, premium finance is a mechanism that allows more than 20 million individuals to manage their insurance payments in instalments. The annual interest rates for these borrowed funds typically range from 20% to 30%.
The regulatory body expressed concern that certain providers might not be delivering value for money, with a particular emphasis on those customers experiencing economic hardship.
Since the introduction of its Consumer Duty initiative in July 2023, the FCA has intensified its efforts to safeguard vulnerable and at-risk consumers.
The FCA has previously urged the insurance sector to reconsider the application of high annual percentage rates (APRs) for customers who present a low credit risk.
In April, it issued guidelines on how companies can improve support for borrowers facing financial challenges.
An interim report detailing the findings of the market study and the proposed subsequent measures is expected to be released by the FCA in the latter half of 2025.
FCA director of competition Graeme Reynolds 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.”
The FCA’s market study will include an evaluation of how well customers are informed about their financing choices and the influence of commissions on their decisions.
In addition, the FCA announced its intention to investigate the rising costs of motor insurance and the procedures for handling claims as part of its role in the government’s motor insurance taskforce.
The taskforce aims to identify measures that could potentially stabilise or decrease motor insurance premiums while ensuring adequate coverage levels are maintained.
The FCA will also consider how the escalation of insurance prices affects various demographic groups including younger and older drivers, individuals from ethnic minority communities and those with lower incomes.
“FCA launches review into UK premium finance market” was originally created and published by Motor Finance Online, a GlobalData owned brand.
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