"If customers see that insurers aren’t pricing their products on the basis of risk, but on the extent to which they can exploit consumers’ unwillingness to shop around, consumers’ trust in every aspect of insurance will decline."
- Dr Matt Connell, Policy & Public Affairs Director at the CII
Which? is urging the Financial Conduct Authority (FCA) to act against insurers charging monthly payment customers excessively high amounts of interest after recent research revealed the average annual percentage rate (APR) across car insurers is 22.3 per cent and 20.23 per cent across home insurers – amongst insurers that disclosed their rates. Notably, Co-op Insurance charges the highest APRs for both car & home Insurance at 29.89 per cent.
These rates are comparable to borrowing costs for credit cards, despite insurers taking on minimal risk as they can cancel a policy as soon as a payment is missed. “Many customers who pay for home or car insurance monthly don’t do so out of choice, but because of financial necessity. That these same customers can end up paying over the odds compared to those who pay for cover annually is blatantly unfair.
“This isn’t the first time Which? has sounded the alarm over eye-watering levels of interest, yet excessively high rates persist. Car & home insurance policies aren’t nice-to-haves, but essential for motorists and homeowners. It’s high time for the FCA to take meaningful action against firms that continue to charge high rates and end this injustice,” expressed Rocio Cancha, Director of Policy & Advocacy at Which?
For car insurance, the AA, Hastings Direct, InsurePink, and People’s Choice all charge an APR of 26.9 per cent. The Green Insurer and Santander charge rates of 26.6 per cent and 26.5 per cent respectively. NFU Mutual and Hiscox don’t charge any interest to pay monthly.
For home insurance, the AA and Hastings Direct charge 26.9 per cent while 1st Central charges a rate of 25 per cent. Nineteen home insurers don’t charge any interest to pay monthly: Age Co, Bank of Scotland, Halifax, John Lewis, Lloyds Bank, MBNA, M&S Bank, Nationwide Building Society, NFU Mutual, SAGIC, Sainsbury’s Bank, Santander, TSB, Yorkshire Building Society, Hiscox, HSBC, Natwest, RBS, and Urban Jungle.
Esure and Shelias’ Wheels refused to participate in the survey and others didn’t respond with their rates. However, a mystery shop of the car insurers that didn’t take part (carried out by Which?) found several charging much higher rates than amongst those that had responded. Four firms charge rates far above the industry average - based on the rates provided.
Considering insurers can cancel a policy as soon as a payment is missed, Which? wants the FCA to urgently publish an action plan, including a deadline for when it will stop insurers charging excessive monthly interest rates. As part of this action plan, Which? suggests collecting data on the cost to firms providing premium finance and the difference in their profit margins between customers paying monthly and those paying annually.
In response to this warning, Dr Matt Connell, Policy & Public Affairs Director at the Chartered Insurance Institute (CII), stressed that “In the midst of a Cost-of-Living Crisis, with insurance premiums increasing significantly because of wider inflationary pressures, it’s essential that consumers can trust insurers to set prices fairly.”
He said: “If customers see that insurers aren’t pricing their products on the basis of risk, but on the extent to which they can exploit consumers’ unwillingness to shop around, consumers’ trust in every aspect of insurance will decline, leading many people to decide not to buy cover at all, with potentially disastrous results.
“Being able to pay for insurance in instalments is a valuable benefit for many consumers, and many insurance policies allow customers to do this while making no additional charge, or a small charge that allows for measurable and justifiable factors, such as the inflationary impact of collecting payments over time.
“Charging high rates of interest with no reasonable justification is not compatible with an ethical approach,” Matt concluded.
