Summary
This FCA market study explores the provision of premium finance, focusing on motor and home insurance policies. The study aims to assess whether the market offers fair value to consumers and how effectively competition functions. With rising insurance premiums, the demand for premium finance has increased, particularly among vulnerable customers. The FCA seeks to identify any regulatory or structural issues and potential remedies to ensure good consumer outcomes under the Consumer Duty framework.
Key Take Aways
- Consumer Usage: Over 20 million UK adults use premium finance, with widespread usage in motor and home insurance.
- High Costs: APRs for premium finance can reach 30%, raising concerns about affordability and fair value.
- Vulnerability Focus: Vulnerable consumers, who often rely on premium finance, are more exposed to high costs and poor value products.
- Competition Concerns: The market may suffer from weak competition, limited customer decision-making power, and misaligned incentives across the supply chain.
- Scope: The study will focus on premium finance related to motor and home insurance, both of which are essential and have experienced significant price increases.
- Information Barriers: Customers may face challenges in accessing clear, timely information on premium finance options, affecting their ability to shop around.
- Misaligned Incentives: Commercial arrangements, particularly commission structures, may not align with consumer interests, potentially inflating costs.
- Regulatory Tools: Potential outcomes include new rules, guidance, or enhanced supervisory actions to address any identified harms.
- Concurrent Work: This study aligns with broader FCA initiatives, including reviews of general insurance pricing practices and motor insurance business models.
Innovation
- Market Analysis Framework: The FCA applies a detailed, evidence-based approach to assess market dynamics, focusing on both competition and consumer protection.
Key Statistics
- 32% of customers reported borrowing more to manage insurance costs in 2024.
- Outstanding premium finance balances exceeded £5 billion in 2022, generating £1.2 billion in provider revenue.
- Motor insurance premiums rose by 25% on average in 2023.
Original: LINK
RO-AR insider newsletter
Receive notifications of new RO-AR content notifications: Also subscribe here - unsubscribe anytime
