Consumer champions are demanding urgent action to block insurance firms from hitting customers with punishing charges if they pay premiums monthly rather than up-front.
Experts at Which? say some brokers and firms push up the cost of motor and other policies by hundreds of pounds by charging interest payments of as much as 45 percent if people spread the cost over a year.
The Transport Secretary Louise Haigh and Treasury minister Tulip Siddiq have instructed the competition watchdog and the main financial regulator to join a taskforce including industry and consumer groups as part of a push to “agree solutions to keep costs under control”.
The action came as the government said motor insurance premiums have jumped by 21 percent on average since June 2022, which is much faster than comparable European countries.
The taskforce will identify the factors behind rapidly rising premiums and will agree solutions to keep costs under control.
The government said factors driving up the cost of insurance include inflation, rising car thefts and the country’s pothole-ridden roads, which the government has pledged to fix with a plan to fill up to 1 million more potholes every year.
The taskforce is part of the government’s manifesto commitment to act on the high cost of insurance for drivers – particularly those who are disproportionately affected by high prices such as young and older people and those from ethnic minority backgrounds or on lower incomes.
Louise Haigh said: “Car insurance is an essential, not a luxury. It is vital to accessing economic opportunities and this government is committed to getting costs under control. That’s why we’re taking direct action to bring insurance companies and regulators round the table to discuss how we can crack down on spiralling costs.
“The rising cost of cover affects all drivers but some groups have been hit harder than others. No matter your background or circumstance, this government is determined to ensure drivers get a fair deal.
“Our new expert taskforce is a major step forward in delivering a fair deal for drivers. It will give this issue the attention it deserves – rooting out the factors driving up costs for industry and ensuring drivers are able to hit the road.”
Which? welcomed the setting up of the taskforce but it said government watchdogs should take action now to protect consumers.
The consumer group published research last month which found that people are being charged eye-watering interest rates if they choose to pay motor and home insurance premiums monthly. It said most of these interest rates hover around 20 percent, but some are charging more than double this figure.
One broker quoted a figure that charged a driver some £161 extra for a motor policy where premium payments were spread over a year, which was based on an APR interest rate of 45.1 percent.
Anabel Hoult, the Which? Chief Executive, said: “With the cost of insuring a car at eye-watering levels, it’s no surprise many motorists dread the time for renewal.
“Which? research has highlighted serious problems with the motor insurance market, from unjustifiably high levels of interest for customers who pay for cover monthly rather than annually, to widespread evidence of significant harm caused by insurers’ claims handling process. I welcome the government setting up this task force to ensure that these issues are addressed.
“However, there is nothing to stop the Financial Conduct Authority from acting now to show it is on the side of consumers. We want to see the regulator getting tough with insurers that charge excessive monthly rates or fall short of their responsibilities under the Consumer Duty.”
