MONTHLY CAR INSURANCE RATES AS HIGH 40% ARE ‘TAX ON BEING POOR’ WARNS WATCHDOG
Car owners are being hit with “eye-watering” annual percentage rates (APR) of up to 40 per cent if they pay for their insurance monthly, according to consumer group Which?
The same study found some home insurers charging up to almost 35 per cent APR on monthly payments.
Which? is calling for rapid action from the Financial Conduct Authority (FCA) watchdog to clamp down on the interest rates being charged by insurers for monthly repayments.
It says the charges penalises some of the poorest customers who are less able to pay off insurance in one go.
Which? asked 39 car insurers and 34 home insurers what APRs were applied to monthly payments and where there was more than one rate, what made the difference.
It found that the highest car insurance rate was 39.11 per cent and the average rate across 27 providers was 23.37 per cent. Only two car insurers said they did not charge interest on monthly repayments.
For home insurance, Which?found that customers pay between 31.31 per cent to 34.75 per cent APR on monthly payments. The average across the providers that charge a rate and disclosed it was 23 per cent.
Fifteen home insurance providers surveyed said they do not charge interest: Bank of Scotland, Halifax, Hiscox, HSBC, Lloyds Bank, MBNA, M&S Bank, Nationwide Building Society, NFU Mutual, SAGIC, Sainsbury’s Bank, Santander, TSB, Urban Jungle and Yorkshire Building Society.
Which? said that, in January this year, the average credit card rate was 34.8 per cent with the majority of cards charging up to 25 per cent.
But Which? say the risk to insurers is lower than for credit card providers, because the credit being offered is directly linked to the sale of the insurance policy and non-payment by customers can lead to the cancellation of the policy.
Since January 2022, motor and home insurers have been required to provide fair value on their products and those requirements have been further strengthened by the introduction of the Financial Conduct Authority (FCA)’s Consumer Duty last year.
Rocio Concha, director of policy and advocacy at Which?, said: “The regulator has been clear – paying for insurance monthly is a tax on being poor and it’s shocking to see providers still trying to justify the practice.
“Given many firms’ interest rates don’t seem to reflect the modest risk they’re taking on, customers paying monthly are being charged disproportionately more than those paying annually.”
She called for the FCA to “get tough with firms that take advantage of customers who can least afford it”.
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 premiums by monthly instalments is an option they offer to help customers manage their budgets.
“The cost of premium finance is one of a number of topics we continue to discuss with our members and the Financial Conduct Authority.”
An FCA spokesperson said: “Premium finance helps people to spread the cost of insurance. We have made it clear to industry they need to ensure people are getting fair value from it.”
2024-04-17T05:34:30Z dg43tfdfdgfd