We’ve responded to the Financial Conduct Authority’s draft Terms of Reference for a market study into the provision of premium finance for motor and home insurance.
‘We welcome this study and share the FCA’s concerns that the premium finance market requires some scrutiny and that consumer outcomes can almost certainly be improved’.
Emma Kosmin, Policy and Public Affairs Manager at Fair4All Finance
Premium finance – in which customers take out a loan to pay for insurance in instalments – is one of the key drivers of the ‘poverty premium’ in insurance, exacerbating the extra costs that people on low incomes or in poverty face when navigating the insurance market.
Consumers who don’t have the means to pay upfront for insurance are charged an additional premium, which can be worth as much as £384 more for car insurance coverage, compared to better off consumers who can afford to pay outright.
‘The high costs and the poverty premium around premium finance contribute to people in financially vulnerable circumstances face having low access to insurance. Analysis of our customer segmentation reveals that around a quarter of those in this group – 5 million people – have no insurance whatsoever, compared to 15% of the general population.’
Jake Attfield, Head of Strategy and responsible for insurance engagement at Fair4All Finance
We agree with the FCA’s concerns that competition appears to work poorly in this market, and that consumers don’t seem to get fair value compared to the risk of the product to the lender or insurer.
In our response we recommend that the market study:
- looks at the impact of the high premium finance costs on people’s access to insurance, particularly customers in vulnerable circumstances and those on low incomes
- alongside motor and home insurance, looks at premium finance in other insurance products, which are also affected by the poverty premium and can be an important part of people’s financial resilience
