Some movement on the interest rates charged on monthly premiums would be welcome, here’s the word from the ABI;
Members of the Association of British Insurers (ABI) have committed to new steps to try and manage the amount that those paying monthly for their motor insurance are charged for the benefit. Announced today, the Premium Finance Principles underline what fair practice should look like and revolve around five elements: Transparency, affordability, fair value, proportionality and accountability.
As a result, such charges should be made completely clear to consumers and be reasonable, relative to the cost incurred by the insurer for providing the option.
The ABI set out the steps the industry is taking to combat the rise in the cost of motor insurance at its conference in February. A focus on premium finance is an important part of this work, and while a voluntary industry-led cap on premium finance charges was considered and discussed with the FCA, the principles represent what is possible within the limits allowed by competition laws and provide a basis for firms to take meaningful action.
Furthermore, following discussions with other organisations involved in providing premium finance (i.e. brokers and third-party finance providers), the ABI is confident the principles are supported throughout the wider market.
The Premium Finance Principles committed to today are:
1. Transparency: When setting out any cost for paying by monthly instalments, insurers should provide a clear comparison of the total cost of paying annually and the total cost of paying monthly. Insurers should also publish up-to-date, clear information about their common or average premium finance charges.
2. Affordability: When deciding on their premium finance offering to customers, insurers should have regard to the fact that many consumers cannot afford to pay for their insurance up front, in one lump sum and so charges for paying by monthly instalments can fall hardest on those who can least afford it.
3. Fair value: Insurers must ensure that costs associated with monthly instalments represent fair value. As part of this, insurers should consider how any income from premium finance compares to their income on the core premium.
4. Proportionality: Insurers should ensure that charges are reasonable, relative to the costs of providing premium finance for monthly payments. Insurers should also consider charges relative to comparable and accessible alternative payment options, such as a credit card.
5. Governance and Accountability: Insurers must regularly review the cost to customers of premium finance, using suitable information or data to ensure any charges remain appropriate. They should ensure the right level of senior management accountability for their approach taken on premium finance charges and its impact on consumers.
The ABI has committed to publish a report by Summer 2025 on the impact of these principles on premium finance for motor insurance customers.
Motor insurance affordability is one of three highlighted consumer issues in the ABI’s Financial Inclusion Strategy, launched today, alongside reducing the impact of ill health on financial security and filling the pensions advice gap.
Motor insurance costs have been a particular focus after claims inflation led to the cost of premiums rising 25% in 2023. EY estimates that in 2023 for every £1 paid in premiums, insurers incurred £1.14 in claims and expenses.
Mervyn Skeet, Director, Head of General Insurance policy said:
“The principles announced today are one of a raft of actions we are taking to tackle the cost of motor insurance, which we know is putting pressure on households, especially those on lower incomes. We are doing all that we can within our reach as a trade body for insurers and hope that other organisations involved with premium finance follow our lead.”
“We’re also looking to investigate policy steps that could help low-income households specifically, as well as deliver on our broader Roadmap to tackling costs. This includes a call on the government to reduce insurance premium tax (IPT), especially when they are bringing in record tax revenues as a result of higher prices.”
The Premium Finance Principles include explanation of why insurers charge for pay-monthly,1 namely that it incurs administrative costs and the insurer is unable to invest an annual sum or use those funds to pay claims.
INDUSTRY COMMENT;
QUOTEGOAT
Reacting to the news, founder of comparison site Quotegoat.com, Michael Foote said: “The Association of British Insurers has finally taken meaningful steps to ease the financial strain on drivers who can’t afford to pay for their insurance in one lump sum. Insurers should recognise the challenges faced by those unable to pay upfront and opt for paying monthly – taking advantage of their situation is simply unacceptable and I hope providers found to be doing so will face consequences.
“Make it a habit to compare the price of your car insurance every year using comparison sites – never automatically take the first price you’re offered to automatically renew – it’s seldom the best price you’ll get. If you find a better offer elsewhere, don’t be shy about negotiating with your current provider. It’s about time we hold our car insurance providers to account”.
NTT DATA
Deborah Bale, Head of General Insurance & Broking at NTT DATA UK&I, said: “Today’s announcement by the ABI is timely given the rising pressures on household budgets. The next step should be to harness robust, data-driven processes that allow firms to make sustainable pricing decisions in tough economic circumstances. This approach not only supports affordability but also ensures our customers can rely on their vehicles, which for many, are their lifeline to work, healthcare, and more.
“By feeding our algorithms with the right data, we can make more precise decisions that reflect the real risks and needs of motorists. We need intelligent insurance policies that adapt to the lives of those they’re designed to protect. Indeed, as we implement these data-driven strategies, the industry must also stay vigilant to ensure these technologies are as inclusive as they are innovative, preventing any biases that could undermine the very fairness we aim to enhance.”
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