Monthly insurance costs cut by £157m a year after premium finance rates fall

Consumers paying for insurance on a monthly basis are saving around £157 million a year combined after firms cut premium finance rates, according to the UK’s financial watchdog.

The Financial Conduct Authority (FCA) said interest rate premiums on monthly payments have fallen by 4.1 percentage points on average since 2022, which has saved consumers £8 on a typical motor policy and £3 on home cover a year.

The regulator said this came after it put the spotlight on the sector in a market study launched in October 2024 amid concerns some firms were not providing fair value for those paying monthly.

Among firms it identified as being at highest risk of not delivering fair value, consumers have saved even more – at £14 on a typical motor cover and £4 for a home policy each year.

But consumer group Which? branded it a “weak response” from the FCA, hitting out at its decision not to enforce changes.

Rocio Concha, Which? director of policy and advocacy, said: “For too long, car and home insurance customers who can’t afford to pay for cover all in one go have been stung by excessive rates of interest that have seen their overall cost soar.

“They have been let down by this weak response from the FCA.

“Despite it being two-and-a-half years since the introduction of the Consumer Duty, and previously calling premium finance ‘a tax on being poor’, the regulator has decided just to warn a few bad apples, rather than fundamentally tackling the issue.”

The FCA found in 2023 that nearly half of all motor and home insurance policies – around 23 million – were paid monthly as under-pressure consumers looked to spread the costs and were unable to afford to pay annually.

Paying insurance premiums monthly is more expensive than paying upfront, as providers charge annual percentage rates on the amount, similar to a high interest loan.

But the FCA confirmed it would not introduce a price cap or order firms to provide zero-interest cover for monthly payments, as it said this could “restrict access to important cover for customers who can only afford to pay monthly”.

Graeme Reynolds, director of competition and interim director of insurance at the FCA, said: “For millions, paying for insurance monthly is not a choice: it’s a necessity.

“We found that competition in the market is meeting the needs of many consumers.

“But where we found issues, we used our Consumer Duty to get people fairer value, without needing to write new rules.

“While we’re not planning any market-wide changes, we won’t hesitate to act if firms fall short of our expectations as we continue to monitor fair value.”