Latest news with #premiumfinance
The Sun
22-07-2025
- Automotive
- The Sun
Insurers slammed for ‘double dipping' customers and it adds up to £51 a year to bills – how to avoid it
INSURANCE companies have been accused of piling hidden costs onto customers who choose to pay in monthly instalments. Some consumers choose to use premium finance, aka paying in instalments rather than in one lump sum, to spread costs. 1 But concerns have been raised by regulator The Financial Conduct Authority (FCA) that some insurance companies are earning much more money than it costs to provide a premium finance service. Insurers will generally charge customers extra to pay in monthly instalments rather than yearly. But the FCA believes some "pay monthly" customers are also being forced to pay more for the insurance itself. This is a practice sometimes described as "double dipping", and it means you could be left more out of pocket. Insurers have said some customers paying monthly use payment methods that increase risk. Around half of motor and home insurance policies were paid for in monthly instalments in 2023. Some people might simply prefer to spread the cost but others cannot afford to pay annually. Last year, 60% of motor policyholders who paid through premium finance said they did so because they couldn't afford to make a single annual payment. Usually, insurance companies charge APRs of between 20 to 30% to customers choosing to pay by premium finance. In some cases it can be more than 30%. Drivers warned over common car feature that quietly causes insurance bill to spike – you'll pay more just for having it This would cost an extra £19 to £28 on an illustrative home policy and £35 to £51 on an illustrative motor policy – suggesting it costs consumers typically between 8% and 11% more to pay monthly rather than annually, the regulator said. Ealier this year, consumer champion Which? asked 52 car insurers and 46 home insurers what rates of interest they charged customers to pay for cover monthly. Among the insurers that responded, Which? identified the highest APRs were being charged by One Insurance Solution and The Insurance Factory. One Insurance Solution applied rates of 30.72% to 34.08% for home insurance, while The Insurance Factory imposed the same rates for car insurance. The consumer group highlighted that these rates are comparable to the borrowing costs of credit cards (35.42%), despite credit card providers taking on significantly higher risks when extending credit. More than a third of home insurance customers pay no more for paying monthly than annually, compared with less than 3% of motor insurance customers. Companies do have extra costs when they offer premium finance, including for staff, IT and compliance. Plus they might have funding costs or must sacrifice investment income by delaying the date of full payment. Credit products are also priced to compensate companies for high levels of bad debt or default. But the FCA's rules mean companies should not increase the insurance premium for customers using premium finance without a reasonable basis. It said in its latest update: "Where firms charge for premium finance, revenues appear to materially exceed costs for some providers. "Whereas the profit margin earned on a core insurance policy may be relatively low, we see margins on premium finance that are somewhat higher." Association of British Insurers (ABI) director general Hannah Gurga said: "Having the option to pay for insurance in monthly instalments can provide flexibility for those who need to manage their budgets. "Offering this service does involve costs for insurers and firms also have to keep cover in place for a period of time if a payment is delayed or missed. "Our premium finance principles, which we published last year, outline that any charges should be fair, transparent and reflective of the costs that the insurer faces. "We'll continue to work with our members on this matter and engage with the FCA's review." How you could avoid paying extra It is worth noting that if you don't have the cash to pay for your insurance upfront, you could find other ways of spreading the cost without high APRs. For example, you could use a 0% interest credit card. If you do this you must make sure you pay it off on time. Some banks also allow you to spread the cost of certain payments. For example, online bank Monzo has a Flex feature that lets you pay off some of your outgoings over the course of a few months. 'Concerning' evidence on how insurance claims handled The FCA also looked into how insurance companies handle motor insurance claims. It said it found "concerning" evidence of poor practices, including delays in settling claims, lack of oversight on outsourced services, and high levels of complaints. It also found evidence of failures to promptly identify and resolve claims handling issues, as well as cash settlements being used in some cases where it might not have been suitable. The FCA said it is addressing the issues directly with the companies involved, including taking action against some of them. How to get cheap car insurance CAR insurance is an essential cost that you hope to never use but will need to cover the costs of theft or damage to your vehicle. It's a legal requirement to have car insurance, and going without it could land you with a £300 fine, six penalty points on your licence and even a criminal conviction. But there are several ways to slash your premiums. Pay upfront Insurers give you the choice of paying for insurance monthly or upfront. Paying monthly spreads the cost of your cover but the insurer adds interest charges which means the average motorist pays around ten per cent more overall. If you pay for your car insurance annually you don't pay any interest. A typical motorist can save up to £225 a year by paying in one go, according to comparison site MoneySuperMarket. Increase your excess The excess is what you agree to pay each time you need to make a claim on your policy. You can usually choose your own excess when setting up a policy and it can be as low as £100 and as high as £500 or more. The higher your excess, the lower your premium and vice versa. This means you could bring the cost of your insurance down by agreeing to pay more if you do need to make a claim. But before you hike your excess, make sure you would be able to pay in the event that you do need to make a claim. Tweak your job Certain jobs are seen as more risky than others for insurance purposes. Making small but accurate changes to your job title can save you money. For example, swapping your role from "chef" to "caterer" can save you £20, comparison site GoCompare found. And changing your role from "fast food delivery driver" to "delivery driver" could save you £40. But lying about your job could invalidate your policy so make sure any changes are legitimate and accurate. Shop around Not all comparison sites have the same range of insurers so to get the best price it's a good idea to check two or three from Go Compare, Comparethemarket, MoneySupermarket and Insurer Direct Line is also not on comparison sites so check its prices directly. You can also get a free cash bonus by going via a cashback site such as Topcashback or Quidco. Save the date Renewing your car insurance sooner rather than later could save you some cash. New cover becomes more expensive the closer you get to the renewal date. But you can buy your car insurance up to 29 days before the policy start date and 'lock in' the price you're quoted on that day. A typical driver can save up to £265 buying new cover at least 27 days before their current policy ends, according to Go Compare.
Yahoo
22-07-2025
- Business
- Yahoo
Some firms ‘earn much more money than it costs to provide pay monthly insurance'
Some firms earn much more money for providing insurance premiums paid by customers in monthly instalments than the cost of providing the cover, the regulator has said. Some 'pay monthly' customers may also face a higher charge for the underlying insurance premium – a practice sometimes described as 'double dipping'. Concerns have been raised that the decision to pay monthly may be factored into the pricing of the underlying insurance premium itself. The Financial Conduct Authority's (FCA) rules require firms should not increase the insurance premium to customers using premium finance without objective and reasonable basis for the change. Some insurers have said the choice of payment method is correlated with insurance risk for those paying monthly. The FCA's update paper on its premium finance market study said: 'If we see evidence of firms not having an objective and reasonable basis for taking such an approach, we will consider our supervisory approach on a firm-by-firm basis.' The update added: 'Where firms charge for premium finance, revenues appear to materially exceed costs for some providers. 'Whereas the profit margin earned on a core insurance policy may be relatively low, we see margins on premium finance that are somewhat higher. 'Different business models will have different ways of recovering costs. 'In some cases, they recover all costs through the insurance product itself, or recoup returns on lower margin insurance product through higher APRs (annual percentage rates).' The FCA's analysis found premium finance margins (revenue less economic costs as a proportion of revenue) ranging between 14% and 62% across insurers, intermediary lenders, intermediary brokers and specialist premium finance providers (SPFPs) in the period between 2018 and 2023. SPFPs averaged the lowest margins out of these four, with a weighted average margin of 24% between 2018 and 2023. Insurers had the highest weighted average margins of 53%, the regulator said. Firms offering premium finance incur some operational costs, for instance staff, IT and compliance. Lenders also incur funding costs or must sacrifice investment income by delaying the date of full payment, it added. Consumer credit products are also priced to compensate firms for high levels of bad debt or default, among other costs. The update said: 'Nevertheless, we find that some bad debt is incurred by premium finance lenders (with the ratio of bad debt to loan balanceranging from 0.6% for SPFPs to 1% for intermediary lenders) but not at the levels of other consumer credit products (1.9% for credit cards based on a sample of retail banks).' The FCA said premium finance is an important way of paying for insurance, and in 2023 it was used for around 48% of motor and home policies. For some consumers, premium finance is a choice, but for many, especially those in more vulnerable groups, it is a necessity because they cannot afford to pay annually, the regulator said. In 2024, 60% of motor and 41% of home (buildings and contents combined) policyholders who paid by instalments did so because they could not afford to pay in a single annual payment, it added. There is wide variation in the rates firms charge for paying by instalments. Typically, when firms charge extra for premium finance, the APRs are in the range of 20% to 30% but almost 20% of consumers pay more than 30%, the report said. Around 60% of consumers pay headline APRs that are between 20% and 30%. This would cost an extra £19 to £28 on an illustrative home policy and £35 to £51 on an illustrative motor policy – suggesting that it costs consumers typically between 8% and 11% more to pay monthly rather than annually, the regulator said. Interest rates on consumer credit vary across products and between consumers, but these APRs compare with monthly advertised interest rates in 2023 of 35% for overdrafts, 11% on a £5,000 personal loan and 23% for credit cards issued by financial institutions as reported by the Bank of England, the FCA's paper said. It added: 'Our own data, which captures a larger proportion of the market including cards marketed as 'credit builders', shows average APRs on new credit card agreements ranged between 26-32% at the end of 2023.' The cost of paying monthly also differs substantially between motor and home insurance, the FCA said. More than a third of home insurance customers pay no more for paying monthly than annually, compared with less than 3% of motor insurance customers. Some firms have indicated that cancellations and changes of policy tend to occur at a higher rate in motor than home, which leads to higher costs for providing motor insurance premium finance, the regulator said. Zero per cent finance options for home insurance also seem to be more common than in motor insurance in part because there is greater prevalence of buying direct from the insurer, enabling firms to more easily offset the funding and operational cost of offering monthly payments. The FCA now plans to carry out further analysis to look more closely at higher-priced products, the value these products provide, profitability, and the extent to which these prices are paid by vulnerable customers. Where it finds products with prices which are not reflective of the value offered, the regulator said it will be challenging firms to make sure they have considered all these aspects fully. The FCA will also investigate the extent to which consumers can effectively compare premium finance with other credit products. Its premium finance market study was launched in October 2024 as part of wider work on motor and home insurance, following concerns that premium finance may not represent fair value for some customers and that competition may not be functioning effectively. The FCA's findings are based on evidence and data that it has gathered from a request for information (RFI) from a sample of firms. It is seeking comments to further inform the next phase of the market study, and is inviting views to be sent by 5pm on September 30 2025.
The Independent
22-07-2025
- Business
- The Independent
Some firms ‘earn much more money than it costs to provide pay monthly insurance'
Some firms earn much more money for providing insurance premiums paid by customers in monthly instalments than the cost of providing the cover, the regulator has said. Some 'pay monthly' customers may also face a higher charge for the underlying insurance premium – a practice sometimes described as 'double dipping'. Concerns have been raised that the decision to pay monthly may be factored into the pricing of the underlying insurance premium itself. The Financial Conduct Authority's (FCA) rules require firms should not increase the insurance premium to customers using premium finance without objective and reasonable basis for the change. Some insurers have said the choice of payment method is correlated with insurance risk for those paying monthly. The FCA's update paper on its premium finance market study said: 'If we see evidence of firms not having an objective and reasonable basis for taking such an approach, we will consider our supervisory approach on a firm-by-firm basis.' The update added: 'Where firms charge for premium finance, revenues appear to materially exceed costs for some providers. 'Whereas the profit margin earned on a core insurance policy may be relatively low, we see margins on premium finance that are somewhat higher. 'Different business models will have different ways of recovering costs. 'In some cases, they recover all costs through the insurance product itself, or recoup returns on lower margin insurance product through higher APRs (annual percentage rates).' The FCA's analysis found premium finance margins (revenue less economic costs as a proportion of revenue) ranging between 14% and 62% across insurers, intermediary lenders, intermediary brokers and specialist premium finance providers (SPFPs) in the period between 2018 and 2023. SPFPs averaged the lowest margins out of these four, with a weighted average margin of 24% between 2018 and 2023. Insurers had the highest weighted average margins of 53%, the regulator said. Financial Conduct Authority"> Firms offering premium finance incur some operational costs, for instance staff, IT and compliance. Lenders also incur funding costs or must sacrifice investment income by delaying the date of full payment, it added. Consumer credit products are also priced to compensate firms for high levels of bad debt or default, among other costs. The update said: 'Nevertheless, we find that some bad debt is incurred by premium finance lenders (with the ratio of bad debt to loan balanceranging from 0.6% for SPFPs to 1% for intermediary lenders) but not at the levels of other consumer credit products (1.9% for credit cards based on a sample of retail banks).' The FCA said premium finance is an important way of paying for insurance, and in 2023 it was used for around 48% of motor and home policies. For some consumers, premium finance is a choice, but for many, especially those in more vulnerable groups, it is a necessity because they cannot afford to pay annually, the regulator said. In 2024, 60% of motor and 41% of home (buildings and contents combined) policyholders who paid by instalments did so because they could not afford to pay in a single annual payment, it added. There is wide variation in the rates firms charge for paying by instalments. Typically, when firms charge extra for premium finance, the APRs are in the range of 20% to 30% but almost 20% of consumers pay more than 30%, the report said. Around 60% of consumers pay headline APRs that are between 20% and 30%. This would cost an extra £19 to £28 on an illustrative home policy and £35 to £51 on an illustrative motor policy – suggesting that it costs consumers typically between 8% and 11% more to pay monthly rather than annually, the regulator said. Interest rates on consumer credit vary across products and between consumers, but these APRs compare with monthly advertised interest rates in 2023 of 35% for overdrafts, 11% on a £5,000 personal loan and 23% for credit cards issued by financial institutions as reported by the Bank of England, the FCA's paper said. It added: 'Our own data, which captures a larger proportion of the market including cards marketed as 'credit builders', shows average APRs on new credit card agreements ranged between 26-32% at the end of 2023.' The cost of paying monthly also differs substantially between motor and home insurance, the FCA said. More than a third of home insurance customers pay no more for paying monthly than annually, compared with less than 3% of motor insurance customers. Some firms have indicated that cancellations and changes of policy tend to occur at a higher rate in motor than home, which leads to higher costs for providing motor insurance premium finance, the regulator said. Zero per cent finance options for home insurance also seem to be more common than in motor insurance in part because there is greater prevalence of buying direct from the insurer, enabling firms to more easily offset the funding and operational cost of offering monthly payments. The FCA now plans to carry out further analysis to look more closely at higher-priced products, the value these products provide, profitability, and the extent to which these prices are paid by vulnerable customers. Where it finds products with prices which are not reflective of the value offered, the regulator said it will be challenging firms to make sure they have considered all these aspects fully. The FCA will also investigate the extent to which consumers can effectively compare premium finance with other credit products. Its premium finance market study was launched in October 2024 as part of wider work on motor and home insurance, following concerns that premium finance may not represent fair value for some customers and that competition may not be functioning effectively. The FCA's findings are based on evidence and data that it has gathered from a request for information (RFI) from a sample of firms. It is seeking comments to further inform the next phase of the market study, and is inviting views to be sent by 5pm on September 30 2025.
Daily Mail
09-07-2025
- Business
- Daily Mail
Close Brothers cuts back on personal lines as motor finance scandal decision looms
Close Brothers Group shares slumped on Wednesday after the firm unveiled plans to overhaul its premium finance division. The merchant banking business told shareholders it would be 'reducing our emphasis' on personal lines, which predominantly covers motor and home insurance premiums. It comes as the UK Supreme Court prepares to deliver a final decision later this month on a Court of Appeal ruling last October that declared it was illegal for lenders to give commissions to dealerships without a car buyer's informed consent. Like other motor finance providers, Close Brothers is worried it could be left with a substantial compensation bill if the Supreme Court does not rule in its favour. It has already cancelled its dividend, sold its wealth management division to Oaktree Capital Management, and set aside £165million in the first half of this financial year to cover potential legal and redress costs. Close Brothers said the 'market environment has changed' for personal lines, with rising costs, broker consolidation, and operational complexity dampening its 'long-term attractiveness'. The London-based firm will instead concentrate on offering commercial lines, which it believes have the highest level of risk-adjusted returns and long-term growth potential. To support this transition, it plans to reduce its underlying annual costs by £20million while also investing approximately £15million in modernising its technology platforms and streamlining operations. Close Brothers will additionally exit certain broker relationships over the coming six to 12 months that lack a commercial lines focus. These particular brokers contributed about just 4 per cent of the group's operating income and 3 per cent of its loan book as of January 2025. Close Brothers anticipates its premium finance loan book shrinking by around 30 per cent over the next three years, as well as lower operating profits in the division. Mike Morgan, chief executive of Close Brothers, said: 'We are proactively shaping a more efficient and focused premium finance business by repositioning it towards commercial lines.' He added: 'As outlined previously, my priorities remain to simplify the group, improve operational efficiency, and drive sustainable growth. 'This decision brings us closer to a more sharpened portfolio of core businesses positioned to deliver attractive risk-adjusted returns.' Shares in the company plunged 7.9 per cent to 378.6p by the late morning, making them one of the FTSE 250 Index's biggest fallers. However, the shares have added around 75 per cent since the start of the year reflecting suggestions any compensation arising from the motor finance scandal could be less painful than first feared. Analysts at Peel Hunt said on Wednesday: 'The more material news flow for Close Brothers will be the supreme court ruling on motor finance commissions. 'The hope is that the verdict will be announced before the summer recess for the courts, which would mean it would come within the next few weeks in July. 'Our model suggests a range of outcomes, from £72million to £481million, depending on the redress required. 'This compares to the £165million provision Close has already booked.'
Bloomberg
09-07-2025
- Business
- Bloomberg
Close Brothers Rejigs Insurance Premium Unit to Boost Returns
Close Brothers Group Plc, one of the lenders most stung by the UK's ongoing motor finance scandal, said it will revamp its premium finance business as part of its plans to boost returns. The company will now focus on commercial lines insurance premium finance, a product that allows businesses to pay their insurance premiums in installments over time, according to a statement on Wednesday. As part of the shift, the company said it is cutting ties with certain brokers that predominantly offer personal lines insurance premium finance, or loans for consumers' motor and home insurance premiums.
