The financial regulator, the Financial Conduct Authority (FCA), has revealed that it has issues with the way some firms are disclosing payment options on home and car insurance policies. The area is generally known by the name ‘premium finance’, as interest will be charged on the premiums if a customer opts to pay in instalments.
In May 2015, the FCA published the results of a thematic review into the subject. The regulator reviewed the practices of 43 firms, large and small, including 13 insurers, 26 brokers and four price comparison websites.
The review was only concerned with online sales, so the FCA simply reviewed the content of the websites of the 43 firms selected to participate.
The FCA is concerned about how firms describe the relative costs of paying for the insurance upfront, or paying in instalments. This was often done in a confusing way, making it difficult for customers to compare the costs of the two methods, indeed the FCA reported that many customers were not aware there was a cost difference.
According to data supplied by research agency Datamonitor, 40.6% of UK customers pay for their motor insurance in instalments, a figure that rises to 52.5% for household insurance.
Where there was a credit agreement associated with the insurance, which is usually the case when payments are made in instalments, many firms were failing to provide the necessary information on their websites. The information to be provided in these circumstances includes: the name of the credit provider, the firm’s relationship with the provider, the interest rate, the fees and charges payable, the representative annual percentage rate (APR) and the total amount payable. The financial information must be ‘prominently disclosed’ to the customer, i.e. not buried in small print or presented in a confusing way.
The fact that a credit agreement is taken out means firms need to comply with the FCA’s Consumer Credit rules, and with the provisions of the Consumer Credit Act; as well as with the FCA’s Insurance Conduct of Business Rules. The firms also need both consumer credit and insurance permissions.
All firms in the home and car insurance sectors, whether they participated in the thematic review or not, should now take careful note of the FCA’s findings, and make any necessary changes to their practices and procedures. The FCA says it will take further action against some of the firms that participated in the review, so enforcement action remains possible.
Linda Woodall, acting director of supervision at the FCA, said of the review findings:
“Consumers should expect clear information about the payment options available to them. Regardless of whether people choose to pay upfront or in instalments, it’s important that they can see exactly what they are signing up for and how much it costs so they can decide whether they are getting a fair deal.”
Rebecca Rutt, senior insurance writer at the consumer finance website MoneySavingExpert.com, summarised the situation by saying:
“Paying monthly for car or home insurance means you’re effectively choosing a high-interest loan, because along with paying for the insurance, you’re also paying for the interest added on by the insurer.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.