Insurance customers ‘being charged rates as high as 45% for paying monthly’
Which? said people can end up paying ‘over the odds’ compared with insurance customers who pay annually.
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Your support makes all the difference.Some insurance customers are being hit with “unfair” interest rates for paying monthly, according to Which?
The consumer group said the Financial Conduct Authority (FCA) should act swiftly to prevent people being “penalised” for being unable to pay for a year of insurance upfront.
Its analysis found annual rates as high as 45% could potentially be charged.
Many customers who pay for home or car insurance monthly don’t do so out of choice, but financial necessity
Which? researchers asked 49 car and 48 home insurers how much interest they charged customers to pay for cover monthly.
Among insurers that disclosed their rates, the average annual percentage rate (APR) across car insurers was 22.33% and 19.83% across home insurers.
Which? said such rates are comparable to borrowing costs for credit cards, despite insurers being able to cancel a policy as soon as a payment is missed.
Two car insurers in the study – NFU Mutual and Hiscox – did not charge interest to pay monthly, while 19 home insurers do not, Which? found.
Those home insurers were Age Co, Bank of Scotland, Halifax, John Lewis, Lloyds Bank, MBNA, M&S Bank, Nationwide Building Society, NFU Mutual, SAGIC, Sainsbury’s Bank, Santander, TSB, Yorkshire Building Society, Hiscox, HSBC, NatWest, RBS and Urban Jungle.
Which? said Co-op Insurance charged the highest APRs for both car and home insurance in the study, at 29.89%.
A spokesperson from Co-op Insurance said: “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.”
Some insurers did not respond to Which? with their rates.
Firms need to assure themselves, and be able to assure us, that any product they sell provides fair value
In addition, a mystery shop carried out by Which? researchers indicated that some firms were charging higher rates than those found among the firms that had replied to its survey.
Car insurer iGo4 charged an APR of 45.10%, Which? said.
A spokesperson for Markerstudy Distribution – speaking for iGO4 among some other providers, told Which?: “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.”
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.”
She added: “Car and home insurance policies aren’t nice-to-haves, but essential for motorists and homeowners.”
The regulator has said that firms offering premium finance need to ensure their products provide fair value to their target market, including consumers paying monthly.
An FCA spokesperson said: “Premium finance is an important product, relied on by many people to pay for the insurance cover they need.
“Firms need to assure themselves, and be able to assure us, that any product they sell provides fair value.”
A spokesperson for the Association of British Insurers (ABI) said: “Our members understand how important access to appropriate insurance is for their customers and are very aware of the financial pressures households are currently under.
“Paying monthly is one option people have to manage their premiums, and our Premium Finance Principles are intended to make sure the costs involved are clearly explained to customers, reasonable, and relative to those incurred by the insurer.
“The principles represent what was possible for industry to accomplish within the rules of competition law.”