Premium finance costs revealed as FCA begins probe

The average premium finance costs for motor and home insurance have decreased over the last year, according to new figures from pricing specialist Pearson Ham.

According to the data, published on 19 October 2024, the cost of car premiums in monthly instalments was 10.7% in September 2024, down from 11.9% in October 2023.

Home cover, meanwhile, had a market average of 8.3% in September 2024, a decline from 10% in October the previous year.

The data also found that initial deposits were reducing. In the motor sector, the average amount required upfront decreased from 13.6% to 12.7% year-on-year, while there was a drop from 11.7% to 10.8% in the home market during the same period.

The figures come after the FCA said it would review whether motor and home insurance customers using the product were getting competitive deals.

Stephen Kennedy, director at Pearson Ham, said: “Pearson Ham welcomes the FCA’s efforts to ensure transparency and urges insurers to continue refining their offerings to ensure consistency and fair value for consumers.”

Concerns

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.

Kennedy said: “With the FCA increasingly scrutinising how the market for premium finance works and the extent to which it may lead to poor customer outcomes, Pearson Ham’s analysis provides valuable insights into how the market has moderated pricing this past year.

“The study indicates that while costs to consumers are beginning to ease, the level of variability may still be considered a challenge, potentially leaving some consumers exposed to disproportionately high charges.”