Six months after Which? revealed eye-watering interest rates being charged to insurance customers paying monthly, new analysis reveals that little has changed.
In August, the consumer body surveyed 49 car insurance firms and 48 home insurance firms to find out what they charge customers using ‘premium finance’ to pay for their insurance in monthly instalments.
On average, Annual Percentage Rates were found around 20%, but some firms are charging more than double this to some customers while Hiscox and NFU Mutual do not charge interest to customers paying per month for car insurance.
This follows a previous Which? survey in March, criticism of insurers from the Financial Conduct Authority and subsequent promises from the industry to improve.
In a press statement, Which? said, ” Many customers who pay for home or car insurance monthly don’t do so out of choice, but financial necessity. It’s blatantly unfair that these same customers can end up paying over the odds compared to those who pay for cover annually.
“Car and home insurance policies aren’t nice-to-haves, they’re essential for motorists and homeowners. It’s time for the FCA to take meaningful action against firms that continue to charge such high rates and end this injustice.”
Among the providers that disclosed their APRs, the average for car insurers was 22% and for home insurers it was 20%. As in March, these rates are broadly comparable to those charged by credit card lenders, the majority of which offer rates below 25%.
However, credit card lenders arguably face a much greater risk when providing credit, as they stand to lose any outstanding balance if customers default on payments. Meanwhile, if a policyholder stops paying for their insurance, the insurer can cancel their policy. This suggests that some insurance firms are charging excessively considering their reduced level of risk.
In their latest survey, Co-op Insurance charged the highest rate for both car and home insurance, with an APR of 29.89%.
The averages only reflect the providers that took part in the survey as a third of car insurance firms and a quarter of home insurers approached either didn’t respond or wouldn’t tell reveal their APRs.
Rates as high as 45%
To see why some firms were shy about disclosing their rates, it mystery shopped the car insurers that didn’t participate and found a number offering rates higher than those that took part.
Posing as a 40-year-old Vauxhall Corsa driver living in south London, broker iGo4 provided an eye-watering APR of 45.10%, which was the highest and on its More policy, this meant paying £1,158.11 across the year rather than £996.65 upfront – a difference of £161.
Swinton offered a rate of 33.8%, while Dial Direct, Nutshell and Zenith each charged rates of 29.90%.
A spokesperson for Markerstudy Distribution, speaking for each of these brands, told the pollster, “We understand the importance of offering premium finance to help customers purchase insurance products, particularly in today’s market. We strive to provide good customer outcomes and regularly assess the rates of credit we offer customers.”
There have been some improvements: eight car insurers and eight home insurers have dropped their rates.
Co-op Insurance, meanwhile, said in March that it planned to reduce its rates, which at the time ranged from 31.31%-34.75%, and it has followed through on its promise – even though its 29.89% rate tops the table.
It claimed that its rates of credit are set by Markerstudy Distribution, as were the worst offenders in the mystery shopping, adding, “Having reviewed the rates of credit set by our insurance partner Markerstudy Distribution, we have been able to reduce our rates for both car and home insurance over the past few months, and we are continuing to review this on an ongoing basis.
“We openly share our rates of credit with both consumers and consumer bodies as part of our commitment to transparency, and we are encouraging all providers within the industry to mirror this approach.”
Rocio Concha, Which? director of policy and advocacy, said: ‘Many customers who pay for home or car insurance monthly don’t do so out of choice, but 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 is not the first time Which? has sounded the alarm over eye-watering levels of interest, yet excessively high rates persist.
“Car and 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.”
End the rip-off
Which? wants the FCA to take urgent action against firms continuing to charge excessive rates of interest, adding, “We’re calling for the regulator to urgently publish an action plan, and to collect data on the cost to firms of providing premium finance and the difference in their profit margins between customers paying monthly and those paying annually.
“Premium finance is one area in which we think insurers are failing to deliver value to customers.”
At the time of writing, more than 70,000 people have signed the Which? petition demanding action from industry and the regulator.
