Paying monthly for car and home insurance could cost you nearly 50% more

Paying monthly for insurance could cost you almost 50% more, according to research by consumer group Which?.

Drivers and owners who pay their insurance in monthly installments are being charged exorbitant interest rates, some as high as 45% APR.

Which? is urging regulator the Financial Conduct Authority to intervene, calling the practice a “poverty tax”.

The two ways to pay for insurance are monthly and annually.

Paying monthly helps avoid the financial hassle of a single large bill. This is particularly true for car insurance, where average annual premiums are £622.

But paying monthly also means paying more for the same insurance, as most insurers charge extra for the privilege.

Which?’s research found that while the average APR for car and home insurance is 22.33% and 19.83% respectively, some providers charge much higher rates, with one company, iG04, charging a whopping 45.1%.

For example, a 40-year-old driver from south London was offered £996.65 for iGo4’s ‘More’ policy if he paid in advance.

But if you choose to pay monthly, the total would come to £1,158.11, a marked difference that penalises those who cannot pay in one go.

IG04 did not disclose its average APRs to Which?.

Other big names including Swinton, Hastings Direct and AA charge APRs of between 26.9% and 33.8%.

Broker Co-operative Insurance has the highest average APRs for home and car insurance.

Co-op Insurance leads the way in high interest rates, charging an APR of 29.89% for auto and home insurance policies.

Meanwhile, NFU Mutual and Hiscox are two of the few not charging interest on monthly payments, offering some relief in a market flooded with high fees.

Penalize the poor

Which? says many customers who pay monthly do so out of necessity, not choice, and says the high interest rates charged by insurers are unfair given the minimal risk involved.

Insurers can cancel policies for non-payment, while charging interest rates comparable to credit cards, where lenders face much higher risks.

Rocio Concha, Which?’s director of policy and advocacy, said: “Many customers who pay monthly do so not out of choice, but out of financial necessity. The fact that these same customers end up paying more than those who pay annually is grossly unfair.”

Which? wants the FCA to introduce an action plan that requires insurers to disclose their profit margins between monthly and annual payers, with deadlines for reducing APRs and consequences for those who fail to comply.

A Co-op Insurance spokesperson said: “Following a review of the credit rates set by our insurance partner Markerstudy Distribution, we have been able to reduce our car and home insurance rates in recent months, and we continue to keep this under review.

“We openly share our credit ratings with consumers and consumer advocacy organizations as part of our commitment to transparency, and we encourage all providers in the industry to adopt this approach, as the number of providers who choose not to respond to these surveys makes an accurate representation of the industry and proposed policies impossible to achieve.”

A spokesperson for Markerstudy said: “Offering choice to our customers is important to us and that includes the ability to pay monthly for their insurance.

“Markerstudy Distribution owns a variety of brands and within these we have a range of risk profiles that we support. As we strive to deliver good outcomes for our clients, we are working to reduce our APRs on a number of our brands as part of our ongoing review process. The review of brand IG04 (which covers telematics and non-standard motor insurance) is expected in the fourth quarter.”