Premium finance costs drop, saving consumers £157 million yearly
Consumers are saving around £157 million annually as the cost of premium finance has fallen by an average of 4.1 percentage points since 2022. The Financial Conduct Authority reports these savings are due to regulatory engagement and fair value assessments.
Significant savings for millions
Interest rates for premium finance have fallen by an average of 4.1 percentage points since 2022, leading to substantial savings for consumers.
This translates to an £8 reduction on a typical motor policy and £3 on a typical home policy per year.
The Financial Conduct Authority's direct engagement with firms identified as highest risk yielded even more significant changes, with these firms reducing Annual Percentage Rates (APRs) by 7 percentage points on average.
This specific intervention saved consumers £14 on a typical motor policy and £4 on a typical home policy annually.
In 2023, nearly half of all motor and home insurance policies, approximately 23 million, were paid monthly, often due to customers' inability to afford annual lump-sum payments.
These reductions are a direct result of regulatory attention, fair value assessments mandated by the Consumer Duty, and broader base rate reductions.
Consumer Duty drives fairer value
Graeme Reynolds, director of competition and interim director of insurance at the FCA, noted that for many, monthly insurance payments are a necessity.
He stated the FCA used its Consumer Duty to secure fairer value where issues arose, without needing new rules.
The regulator confirmed it will not introduce a price cap or mandate interest-free premium finance, as this could restrict access to important cover for customers who pay monthly.
The FCA expects all firms to consider further changes to their premium finance offerings to meet fair value requirements and has shared examples of good and poor practice across the market.
Targeted action, tangible results
The FCA's approach of targeted engagement and leveraging the Consumer Duty, rather than new rules or price caps, appears effective.
This strategy delivers concrete savings for vulnerable consumers without distorting the market or restricting access to essential insurance.
It sets a precedent for how regulatory oversight can achieve fair value outcomes through existing frameworks.