Insurers told to come clean on policy costs

Difference between paying upfront and in instalments is not always made clear.

Insurance companies and brokers aren't being clear enough to policyholders about the cost of paying for premiums on a monthly basis.

That’s the conclusion from the Financial Conduct Authority (FCA), following its thematic review of premium finance.  

The regulator looked at the online sale of home and car insurance and how people were asked to pay for their premiums. The review considered the processes of 13 insurers and 30 insurance intermediaries, including four price comparison websites.

It found insurers and intermediaries didn’t always provide clear and easily understandable information about the total cost of paying for insurance monthly, rather than annually.

The FCA said this made it hard to compare the difference between paying upfront or in instalments, and in some cases people may not realise there was a price difference between the two.

Cut the cost of your car insurance with loveMONEY

Failings

When a firm provides credit or is acting as a credit broker, they have to provide a representative example setting out the interest rate, any fees or charges, a representative annual percentage rate (APR) and the total amount payable.

But the FCA found a number of instances where either this information was not provided or was incomplete, limiting a shopper’s ability to make an informed choice on how to pay.

The APRs on this sort of credit agreement can vary widely, so it’s important to have all the information to hand in order to understand the impact of the cost of finance on the overall cost of the insurance product.

Linda Woodall, acting director of supervision at the FCA said: “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.”

The FCA also discovered that an adequate explanation of a proposed credit agreement was not always presented early enough in the buying journey to enable shoppers to make informed decisions.  

What's more, firms acting as a credit broker didn’t always reveal the name of the credit provider or details of the relationship with the firm, and in some cases it wasn’t made clear that a fee would be charged.

Cut the cost of your car insurance with loveMONEY

Taking action

The FCA said it expected all firms to take action where necessary to make the costs clearer to shoppers.

The regulator also warned it would follow up with individual firms where it uncovered specific examples of failings and poor practice.

Cut the cost of your car insurance with loveMONEY

More on insurance:

Car insurance for the over 50s

Ways to cut your car insurance

Insurers accepting dashcam footage in car insurance claims

Renting out your home to holidaymakers could cause insurance issues