Broker fury at new FCA affordability tests

Brokers are furious that new affordability tests could disrupt customer’s access to premium finance and drive them into the hands of loan sharks.

The FCA is set to introduce the tests, which would make it compulsory for policy applicants to declare their income before purchasing a policy via premium finance – when a person receives a loan to pay off their insurance, with interest attached.

The income data is sent to the premium finance provider, who then comes back to the broker saying whether it can take on the risk or not.

Brokers have spoken to Insurance Times about their anger at the proposal, saying it could push vulnerable people into the arms of loan sharks or even mean they choose to be underinsured or completely uninsured. 

“It’s overkill from the FCA,” said Mark Bower-Dyke, chairman of Be Wiser Insurance. 

“The problem is that they’ve not thought through these changes and it’s going to have a detrimental impact for the most vulnerable customers,” he said.

“Motor insurance is compulsory and by potentially denying those less well off access to premium finance the FCA will push people into alternative forms of financing.

“This might be loan sharks, or they might turn to short-term policies, which will end up costing them much more over the course of a year.

“It could mean more people choose to remain uninsured.”

Premium finance providers back brokers

And premium finance providers have backed the position of brokers.

Tom Woolgrove, chief executive of Premium Credit, said his firm has been working with the FCA to ensure the checks are proportionate. And he said a full income disclosure was rarely necessary.

“We do not believe that full income and expenditure is proportionate for most insurance premium financing, given the relatively low average premiums, and would clearly be disruptive for brokers and customers journeys,” he said.

“Instead, for our affordability assessments, we are using a range of public information, such as bankruptcy and IVA’s (Individual Voluntary Arrangement), credit reference data and internal performance data.”

Premium finance can benefit customers by spreading the cost of annual premiums. Woolgrove said that, while he understood the regulator’s concerns about overall levels of consumer indebtedness, the FCA should also take into account the detrimental impact of reducing access to premium finance for vulnerable applicants.

”We’ve been calling on the FCA to clarify its policy objectives in relation to the perceived risks and/or additional customer protection from revising affordability assessments, against reducing access to premium finance and the heightened risks of driving customers to other forms of credit or avoiding insurance entirely,” he said.

“We think all participants, including insurance brokers, would benefit from that clarity.”

FCA engagement

Woolgrove said Premium Credit has been encouraging its brokers to engage with the FCA to make it aware of the potential impacts on customers.

This is something Sharon Bishop, chief executive of premium finance at Close Brothers, said it had also been doing.

Bishop said: “Regulatory change is a constant factor in our industry and we need to continuously adapt to evolving requirements.  

“That’s why it’s so important that we work together with our brokers, and the regulator, to implement any changes in the best possible way.  

“Ultimately we all want to achieve the same thing, which is the best possible outcomes for our customers.”