Insurers charging rates similar to credit card providers to pay monthly – Which?
Some car and home insurers are still charging annual percentage rates (APRs) equivalent to credit card lenders for customers to pay for cover monthly, according to Which?
The consumer group asked 52 car insurers and 46 home insurers what rates of interest they charged customers to pay for cover monthly.
Which? said only three car insurers out of the 41 which disclosed their rates said they do not charge to pay monthly and 19 home insurance providers out of 38 which disclosed their rates said they do not charge. Not all insurers responded to the request.
The average APR across car insurers charging to pay monthly was 22.84% and the average APR across home insurers was 21.59%, according to the research carried out in February.
Some providers apply a range of APRs, depending on the customer group or risk, Which? said.
The consumer group said some rates are around or above 30% and are comparable with credit card lenders. It said that, as of late February, the average purchase APR for a credit card was 35.42%, with many card providers charging less than this.
Which? said it believes the risk to insurers is much smaller than for credit card lenders because if someone does not pay, the insurer can terminate the policy.
The Financial Conduct Authority (FCA) is conducting a market study into pricing practices.
More than 20 million people are estimated to pay for their insurance in instalments and FCA research indicates that 79% of adults in financial difficulty have used the product.
Rocio Concha, Which? director of policy and advocacy, said: “People often don’t pay for car and home insurance in monthly instalments out of choice, but financial necessity.”
A spokesperson for the Association of British Insurers (ABI) said: “We understand how crucial it can be for consumers to have the option to pay monthly, so they can manage their insurance costs.
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“Offering pay monthly options does incur costs for insurers but our Premium Finance Principles, launched last year, outline that any charges should be fair, transparent and reflective of those costs. We will continue to work with our members on this matter and look forward to learning more from the FCA on its review.”
