Which?has slammed the “unfair” interest rates charged to insurance consumers who opt for monthly payments, calling on the Financial Conduct Authority (FCA) to act swiftly in protecting customers from being “penalised” if they cannot afford annual upfront costs.
The watchdog revealed some insurers could impose annual interest rates as high as 45%. During their investigation, Which?surveyed 49 motor and 48 household insurers regarding the interest for monthly premium payments.
Among those disclosing data, an average annual percentage rate (APR) of 22.33% was found for car insurers, with home insurers not far behind at 19.83%.
Positively, NFU Mutual and Hiscox stand out by charging no interest on monthly car insurance payments a practice echoed by 19 home insurers, including prominent names such as Age Co, Bank of Scotland, Halifax, John Lewis, Lloyds Bank, MBNA, M&S Bank, Nationwide Building Society, Sagic/Sainsbury’s Bank, Santander, TSB, Yorkshire Building Society, Hiscox, HSBC, NatWest, RBS, and Urban Jungle.
Notably, Co-op Insurance emerged as the firm levying the heaviest APRs in their research, setting the bar at a hefty 29.89% for both car and home insurance plans.
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.”
When Which? reached out, several insurers kept their rates under wraps.
Which?’s further probe, including a mystery shopping exercise, uncovered the fact that certain firms were imposing higher APRs than what some transparent companies had revealed. Notably, car insurer iGo4 was tagged with a hefty 45.10% APR.
Markerstudy Distribution’s spokesperson said on behalf of iGO4 and others: “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.”
Which?’s Director of Policy and Advocacy, Rocio Concha, weighed in, saying: “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.”
She added: “Car and home insurance policies aren’t nice-to-haves, but essential for motorists and homeowners.”
The regulatory body has instructed firms offering premium finance to ensure their services provide fair value to all customers, including those who opt for monthly payments. A spokesperson for the Financial Conduct Authority (FCA) stated: “Premium finance is an important product, relied on by many people to pay for the insurance cover they need.
“Firms need to assure themselves, and be able to assure us, that any product they sell provides fair value.”
On behalf of the Association of British Insurers (ABI), a spokesperson said, “Our members understand how important access to appropriate insurance is for their customers and are very aware of the financial pressures households are currently under.
“Paying monthly is one option people have to manage their premiums, and our Premium Finance Principles are intended to make sure the costs involved are clearly explained to customers, reasonable, and relative to those incurred by the insurer.”
“The principles represent what was possible for industry to accomplish within the rules of competition law.”
