Which? Report Finds Insurance Prices Still Too High for Pay-Monthly Customers

Consumer group, Which? has called for the Financial Conduct Authority (FCA) to step in following their recent report which revealed that pay-monthly customers were still being charged “disproportionately high rates” for their insurance. The report comes six months after previous research revealing “eye-watering” interest rates being charged to pay-monthly customers, however, the new data shows that little has changed despite promises for improvement. 

Which? surveyed 49 car insurance firms and 48 home insurance firms to learn what customers using 'premium finance' are charged for their insurance in monthly instalments.  

The research found that many insurers impose steep annual percentage rates (APR) on monthly payment plans, with some providers charging as high as 45%, with an average of over 20% across both car and home insurance. 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. 

In a mystery shop of the insurers that did not take part in the survey, researchers uncovered a handful of these firms charging much higher rates than found among firms that had responded to the survey. In one of the mystery shopping scenarios, a 40-year-old Vauxhall Corsa driver living in South London was quoted £996.65 upfront - and £1,158.11 for paying monthly. 

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.”  

“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.” 

Dr. Matt Connell, Policy and Public Affairs Director for the Chartered Insurance Institute (CII) has also issued a statement following the report: 

“In the midst of a cost of living crisis, with insurance premiums increasing significantly because of wider inflationary pressures, it is essential that customers can trust insurers to set prices fairly.” 

The response goes on to remind firms of the CII’s code of ethics, which requires members to:  

• ‘not take unfair advantage of a client, a colleague or a third party;’ 

And to ask the question: 

• ‘Do I say “show me where it says I can’t” or do I say “is this ethical?” 

“Charging high rates of interest with no reasonable justification is not compatible with an ethical approach.” 

With the problem continuing to persist, the consumer group wants the FCA to take urgent action against firms continuing to charge excessive rates of interest, which the regulator has acknowledged is a ‘tax on being poor’. The consumer group is also pushing for deadlines to reduce APRs and penalties for those who do not comply. 

A petition has also been launched, demanding action from the industry and the regulator, with over 70,000 people already signing it.