24 January 2024 , 09:04
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Car insurance customers who choose to pay monthly could end up shelling out hundreds of pounds more than those who pay annually, according to research from consumer group Which?
The study found that in September 2023, those paying monthly for an annual policy faced paying around £309 more on average over the year than those paying in one go. The Financial Conduct Authority (FCA) has been urged by Which? to take action against any firms charging excessive interest rates to monthly customers by June 2024.
Rocio Concha, Which? director of policy and advocacy, said: "Car insurance is a legal requirement for motorists and yet those who can't afford to pay in one go annually are often being penalised through unjustifiably high interest rates on their monthly repayments. That isn't right and it's now up to the financial regulator to outline an action plan to tackle the unfair costs of paying monthly for insurance."
"The FCA must monitor the issue closely, publishing an analysis every six months of firms' rates, naming and shaming the worst providers." "The regulator should also assess how much it costs firms to provide premium credit and shouldn't hesitate to take action against providers charging monthly customers excessive interest rates."
A spokesperson for the Association of British Insurers (ABI) said: "Our members are acutely aware of the pressures many households are currently facing and the impact recent increases in premiums due to significant cost pressures outside of their control are having on motorists. Paying premiums by monthly instalments is one option motorists have to manage their budgets.
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"Premium finance is one of a number of topics we continue to discuss with our members and the FCA when considering possible measures that could help customers best manage their insurance costs. We're working with industry bodies like the Society of Motor Manufacturers and Traders (SMMT) and Thatcham Research to understand shared concerns between manufacturers and motor insurers, such as vehicle safety and security," said a spokesperson.
Insurance is based on the risk of claims being made and their costs. ABI data shows that for drivers aged 18 to 20 and 86 to 90, the frequency and average cost of claims are higher, which can affect premiums. Insurers consider several factors when setting the price for car insurance, including the type of vehicle, where it is kept, and the driver.
In the third quarter of 2023, the average price of car insurance was a record £561, a rise of 29% compared to the same time in 2022, according to recent figures from the ABI. Specialist brokers may be able to help people who are finding it hard to get insurance. The British Insurance Brokers' Association can help connect people with a specialist broker.
An FCA spokesperson stated: "We have already told firms they must ensure their products provide fair value, including for customers paying monthly. Where we see products that don't offer fair value to consumers, we will take action."
"We also expect firms to continue to support customers in financial difficulty and reflect on whether they can do more to support people with lower financial resilience, in line with our guidance."
* An AI tool was used to add an extra layer to the editing process for this story. You can report any errors to [email protected]