FCA probing another insurance product due to fair value concerns

The FCA has revealed that it is investigating the premium finance market due to concerns it may not be providing fair value.

The regulator said it would review whether motor and home insurance customers using the product, which allows people to pay for cover in instalments, were getting competitive deals.

Over 20 million people are estimated to pay for their insurance this way and FCA research shows that 79% of adults in financial difficulty have used the product.

However, with the average yearly rate on the amount of money borrowed ranging between 20% to 30%, the FCA is concerned that premium finance may not be providing fair value.

As part of its market study, the FCA will review whether the products represent fair value, how well customers are made aware of their financing options, the role of commission and other potential barriers to effective competition in the motor and home premium finance market.

Graeme Reynolds, director of competition at the FCA, said: “People rely on premium finance to spread their insurance costs by paying in smaller monthly payments.

“We want to ensure that competition works well and make it easier for consumers to find the best deals.”

Gap action

This comes after the FCA has warned that it could repeat the action it took with the guaranteed asset protection (Gap) market in other sectors should products not meet Consumer Duty standards.

Back in February 2024, the regulator said that 80% of the Gap market would be suspending sales after feeling that it was failing to provide fair value to some consumers.

It later confirmed that it had sent further requests to the remaining firms to pause sales of Gap insurance, in a second tranche of engagement.

Several companies have now been allowed to recommence their sales of Gap products.

According to the regulator’s market-wide Product Oversight and Governance Thematic Review for General Insurance and Pure Protection, published on 21 August 2024, “many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes”.

“Insurers need to make sure their customers are getting fair value,” the FCA’s director of insurance Matt Brewis said.

“Progress is being made, but we are still seeing too many examples of insurers and brokers lacking the right information, governance, or oversight to ensure their customers get consistently good outcomes.

“We’ll continue to take action where we see poor value so consumers can have confidence when buying insurance products.”