Research from Cuvva, the flexible insurance provider, has shown that UK consumers continue to be penalised if they are unable to pay an annual lump sum for their car insurance.
As motorists plan their finances ahead of 2021, those renewing their car insurance, and choosing to pay monthly will likely suffer financially from insurance providers’ lack of transparency and clarity. Compared to annual car insurance, it is often not made clear to consumers that they are paying a costly premium for the flexibility of monthly car insurance repayments.
The Ford Fiesta is Britain’s most widely sold car in 2019 and the current top-selling vehicle in 2020. Out of the insurance companies surveyed, it had an average annual insurance premium of £3,975.19 for a young driver. However, costs rose as high as £4,431.50 on average if payments were spread across 12 months. In some cases, the annual percentage rates (‘APRs’) were significantly higher than paying the same monthly instalments through a credit card.
Poorly communicated and unclear APRs sold through larger UK insurers and their partners make it very confusing for consumers. A survey by Cuvva found that almost a third of respondents pay for their car insurance monthly, with over half of these drivers admitting that they paid for their insurance monthly because they cannot afford to pay for it in one lump sum.
This is especially true amongst younger drivers, with some paying an extra of £456 on average per year. Monthly car insurance that has an APR attached to it remains costly for drivers across all demographics. The car insurance industry continues to severely lag when it comes to clarity and accessibility. Which? recently reported that insurers charge an average interest rate of 25% APR to customers who pay monthly. This average APR is higher than nine of the UK’s leading banks, offering mid-level balance transfer credit cards.
Freddy Macnamara, CEO at Cuvva commented: “There remains a widespread lack of understanding of financial services and insurance products amongst younger UK consumers, especially when it comes to repayment plans linked to car insurance. This education gap is not only being inadequately addressed but many providers continue to benefit from the lack of transparency towards its customers. This is something that must be curbed, and new, more progressive players in the market can play a large part in shaping this. As consumers naturally look for savings and flexibility in 2021, the industry must adapt.”
Cuvva looked at some of the UK’s best-known car insurance companies, including Direct Line, Aviva, LV, Churchill and Endsleigh. Endsleigh had the highest price difference between annual and monthly payments at £735 (£4,398.63 vs £5,132.91), as well as the highest APR at a whopping 39%. This is much higher than the average 21% APR for balance transfer credit cards from the top nine UK consumer banks, which provide do not lock consumers into a yearly contract. Macnamara continued:
“The less well-off and younger members of society are more likely to pay for their annual car insurance on a monthly basis, thus paying substantially more than they have to. The car insurance industry remains outdated and unequipped to meet the needs of the UK’s future generations of consumers. Providers need to adapt, innovate and update, and take seriously the duty they have to provide a service that is transparent, accessible and flexible – especially in these
challenging times.
“The industry needs to provide greater transparency around APRs. Introducing an APR threshold will close the wide interest range we’re seeing in the sector, and protect motorists from astronomically high fees hidden in insurance quotes.”
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