FCA Market study into the Provision of Premium Finance: Proposed Terms of Reference - Which? response

Which? welcomes this market study which we expect to comprehensively expose and address the excessive rates of interest charged on many people who pay monthly for insurance. We have raised concerns repeatedly about this issue. Our latest provider survey, which covered 49 motor insurance firms and 48 home insurance firms, found APRs averaging 22% for motor insurance and 20% for home insurance, with rates as high as 29.89% for both motor and home insurance. Our mystery shop found even higher rates, peaking at 45%.
We agree with the many warnings that the FCA has made to the insurance industry about APRs potentially being out of line with firms’ credit risk. The FCA has repeatedly warned about interest rates potentially being unfair despite generally low credit risk – in September 2022, February 2023 and September 2023. In January 2024, the FCA went further in describing premium finance as an example of the ‘poverty premium’ and ‘a tax on being poor’. This includes highlighting that unlike with many other forms of credit, the purchase is tied directly to the credit being offered. This gives the insurer or intermediary the ability to cancel an insurance policy if the customer misses repayments.
The FCA must now fully investigate the scale of harm and intervene to prevent this from occurring and to ensure that redress is provided where necessary. If the FCA’s evidence gathering and analysis find that rates are excessive then this would mean firms have been unfairly penalising customers who pay monthly for many years. This would have disproportionately impacted people in vulnerable circumstances, as shown by the FCA’s Financial Lives survey which has found it is a product that is more likely to be used by people who are in financial difficulty or less financially resilient.

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