We have responded to the FCA’s review of how premium finance affects consumers’ access to fair and affordable insurance. We are pleased to see the FCA exploring this topic and we share the FCA’s concerns that premium finance may not represent fair value for some customers, and that competition may not be operating well in this market.

Many households simply don’t have the savings needed to cover annual insurance costs in one go. And our research shows that people in financially vulnerable circumstances are far more likely than the general population to pay for their insurance in monthly instalments. As the Market Study notes, in 2024 60% of motor and 41% of home customers who paid in instalments ‘did so because they could not afford to pay in a single annual payment’.

Our response highlights our concern that customers who cannot afford an upfront lump sum payment often end up paying more overall. By charging an additional cost to pay in instalments, premium finance is a significant driver of the ‘poverty premium’, compounding the additional costs faced by individuals on low incomes or in poverty when navigating the insurance market.

This means that people already struggling financially are being charged more for essential products such as motor and home insurance. These higher costs are also more common among younger customers, women, people of colour, renters and lone parents – groups already at greater risk of financial exclusion.

We believe that premium finance contributes to people in financially vulnerable circumstances having low access to insurance products. According to the Financial Lives Survey, almost one in six (8.6m) adults do not hold any general insurance products – this rises to one in four adults in financially vulnerable circumstances (Fair4All Finance Segmentation Survey 2024).

We also raise concerns about transparency. Many customers do not realise that premium finance involves entering into a credit agreement, or understand the consequences of missed payments, such as the loss of cover.

The FCA’s market study also found that some insurers engage in ‘double dipping’, a practice where customers who choose to pay monthly are penalised twice – once through a higher insurance quote and again through finance charges. We welcome the FCA’s commitment to firm based supervision to ensure the choice to pay monthly is not used as a risk indicator.

To address these issues, we recommend that the FCA:

• Examines the full impact of premium finance on access to insurance for financially excluded groups
• Promotes greater transparency around costs and the separation of finance and insurance pricing
• Takes action to stop ‘double dipping’ practices that penalise customers unfairly
• Explores ways to open up the market to new providers such as credit unions