Which? calls for urgent FCA action, as research reveals insurers still hitting customers with crippling interest rates for paying monthly
Which? researchers asked 49 car and 48 home insurers how much interest they charged customers to pay for cover monthly and found that several firms are charging excessively high levels of interest, effectively penalising many customers who pay monthly because they cannot afford to pay for a year upfront.
Among insurers that disclosed their rates, the average annual percentage rate (APR) across car insurers was 22.33 per cent and 20.23 per cent across home insurers. These rates are comparable to borrowing costs for credit cards, despite insurers taking on minimal risk as they can cancel a policy as soon as a payment is missed.
Co-op Insurance charged the highest APRs for both car and home insurance at 29.89 per cent.
For car insurance, the AA, Hastings Direct, InsurePink and People’s Choice all charge an APR of 26.9 per cent. The Green Insurer and Santander charge rates of 26.6 per cent and 26.5 per cent respectively.
For home insurance, the AA and Hastings Direct charge an APR of 26.9 per cent, while 1st Central charges a rate of 25 per cent.
Two car insurers - NFU Mutual and Hiscox - do not charge any interest to pay monthly, while 19 home insurers do not. Those home insurers were: Age Co, Bank of Scotland, Halifax
John Lewis, Lloyds Bank, MBNA, M&S Bank, Nationwide Building Society, NFU Mutual, SAGIC, Sainsbury's Bank, Santander, TSB, Yorkshire Building Society, Hiscox, HSBC, NatWest, RBS and Urban Jungle.
Esure and Sheilas’ Wheels, both part of the esure Group, told Which? they would not participate in the survey.
Some insurers did not respond with their rates. However, a mystery shop of the car insurers that did not take part, carried out by Which? researchers, uncovered a handful of these firms charging much higher rates than found among firms that had responded to the survey.
Four firms charged rates far above the industry average based on the rates provided to Which?.
Car insurer iGo4 charged an APR of 45.10 per cent - the highest rate of all providers. This means that customers paying monthly could end up paying as much as £161 extra for iGo4’s ‘More’ policy over the course of a year than those who can afford to pay upfront annually. In Which?’s mystery shopping scenario, a 40 year-old Vauxhall Corsa driver living in South London was quoted £996.65 upfront - and £1,158.11 for paying monthly.
Swinton charged 33.8 per cent. Dial Direct, Nutshell and Zenith Insurance charged rates of 29.9 per cent.
Rates charged by insurers are broadly comparable with APRs set by credit card lenders - the majority of which offer purchase APRs of less than 25 per cent. However, credit card lenders arguably face a much greater risk when offering credit - as they stand to lose any outstanding balance if customers default on payments. By contrast, insurers can cancel a policy if customers stop paying.
Which? therefore believes that many customers who pay for their insurance monthly are being charged disproportionately high rates of interest, considering the modest risk the insurer takes on.
The consumer champion wants the FCA to take urgent action against firms continuing to charge excessive rates of interest, which the regulator has itself acknowledged is a ‘tax on being poor’. This followed FCA research which found that people who were most likely to pay monthly for their insurance were those in financial difficulty.
With the problem well established, now is the time for action. Which? wants the FCA to urgently publish an action plan, as it did to tackle meagre savings rates offered by high street banks, that includes a deadline for when it will stop insurers charging excessive monthly interest rates.
As part of this action plan, the FCA should collect data on the cost to firms of providing premium finance and the difference in their profit margins between customers paying monthly and those paying annually.
It should then make clear where insurance companies' pricing practices are failing to meet fair value requirements, set deadlines for firms falling short to reduce their APRs and take enforcement action against any firms that do not sufficiently address failings.
Rocio Concha, Which? Director of Policy and Advocacy, said:
“Many customers who pay for home or car insurance monthly don’t do so out of choice, but financial necessity. That these same customers can end up paying over the odds compared to those who pay for cover annually is blatantly unfair.
“This is not the first time Which? has sounded the alarm over eye-watering levels of interest, yet excessively high rates persist.
“Car and home insurance policies aren’t nice-to-haves, but essential for motorists and homeowners. It’s high time for the FCA to take meaningful action against firms that continue to charge high rates and end this injustice.”
-ENDS-
Notes to Editors
In September 2024, Which? contacted 49 car insurance providers and 48 home insurance providers, and asked them about their interest rates for monthly-paying customers and how these are set.
In most instances, one figure was provided, while some insurers provided a range. Researchers used the range of rates to calculate an average of rates across all providers.
Despite insurers being required by the FCA to provide 'fair value' since October 2021 and conduct fair value assessments that include premium finance, this has not addressed these blatantly unfair rates. The FCA has recently found that many insurers are ‘not adequately assessing and evidencing that their products deliver fair value and good outcomes. This means firms are not identifying instances where products are not delivering fair value for customers.'
In a Treasury Select Committee appearance in April this year, Charlotte Clark, Director of Regulation at the Association of British Insurers, also said it was difficult to say interest rates of around 40 per cent “felt reasonable”.
Tables
Car insurance
Home insurance
In August 2024, Which? surveyed 49 car insurance providers and 48 home insurance providers about the costs charged to monthly-paying customers - expressed as representative APRs.
The tables show the responses from the providers, and those that Which? approached that did not respond or share their rates.
Tables are ranked from highest to lowest rate. Where a range was disclosed, the ranking is based on the midpoint of the range.
Right of replies
A spokesman for AA Insurance Services said:
“The AA remains confident that we offer a fair and affordable way for people to pay for their home and motor insurance. We are disappointed that some insurers, especially those with higher rates, decided not to participate in this survey. Their cooperation would’ve been beneficial so consumers could see all the options open to them.”
A spokesperson from Co-op Insurance said:
“Having reviewed the rates of credit set by our insurance partner Markerstudy Distribution, we have been able to reduce our rates for both car and home insurance over the past few months, and we are continuing to review this on an ongoing basis.
“We openly share our rates of credit with both consumers and consumer bodies as part of our commitment to transparency, and we are encouraging all providers within the industry to mirror this approach.”
A spokesperson for Esure and Sheilas’ Wheels said:
“Premium finance continues to play an important role in boosting consumer choice and making insurance more accessible and affordable. We regularly assess our premium finance offering to ensure it constitutes fair value and delivers good customer outcomes, and are working to further improve customers’ ability to choose how they pay.”
A spokesperson for Hastings Group said:
“As one of the UKs most competitive insurance providers, we always try and ensure our product remains competitive and continues to provide value to our customers.
Therefore, we are surprised to learn that in your benchmarking we are ranked as the second most expensive in relation to Premium Finance.
“Unlike a number of our peers, we believe it’s only fair that all customers receive the same APR rate when taking out Premium Finance. Our internal benchmarking highlights a number of providers offering APR rates in excess of our current rate of 26.9% and we are aware that some providers have low APRs for some customers but also some that are much higher for other customer groups.
“We are constantly reviewing how competitive our products are and how we can continue to reduce the overall cost of insurance for customers. As part of that commitment we have already planned to reduce our APR further from 26.9% to 24.8% and this change will start to roll out across our products from October.”
A spokesperson for Markerstudy Distribution - speaking for iGO4, Swinton, Dial Direct, Nutshell and Zenith - said:
“We understand the importance of offering premium finance to help customers purchase insurance products, particularly in today’s market. We strive to provide good customer outcomes and regularly assess the rates of credit we offer customers.”
About Which?
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