Pearson Ham, a pricing consultancy specialising in insurance, has reported a reduction in the average cost of premium finance for motor insurance over the past year.
This follows intensified regulatory oversight by Financial Conduct Authority (FCA), which started an assessment of the country’s premium finance market due to concerns over premium finance.
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The FCA’s examination comes amid concerns that individuals who finance their motor insurance payments might not be benefitting from equitable or competitive terms, especially as sector-wide prices escalate.
According to Pearson Ham, the average cost of paying motor insurance premiums in monthly instalments decreased to 10.7% in September 2024, down from 11.9% in October last year.
However, there remains a significant range in premium finance charges, with rates varying from 1.9% to as high as 20.2%.
In addition to interest charges, motor insurers also require a deposit or initial payment. As of September 2024, all motor insurers mandated such a deposit, with the average upfront payment decreasing from 13.6% in October 2023 to 12.7%.
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By GlobalDataThe highest motor insurance deposit required was 33%, while the lowest was 8.3%.
Pearson Ham’s data indicates a general downward trend in the cost of paying by instalments for motor insurance throughout 2024.
This is complemented by a decline in motor insurance premiums themselves, with quoted prices in September 2024 being 8.5% lower than the same month the previous year.
Pearson Ham Group director Stephen Kennedy said: “With the FCA increasingly scrutinising how the market for premium finance works and the extent to which it may lead to poor customer outcomes, Pearson Ham’s analysis provides valuable insights into how the market has moderated pricing this past year.
“The study indicates that while costs to consumers are beginning to ease, the level of variability may still be considered a challenge, potentially leaving some consumers exposed to disproportionately high charges. Pearson Ham welcomes the FCA’s efforts to ensure transparency and urges insurers to continue refining their offerings to ensure consistency and fair value for consumers.”
