Insurance company customers are being ‘charged rates of up to 45% for monthly payments’

Some insurance customers are being charged “unfair” interest rates for paying their premiums monthly, according to Which?..

The consumer group said the Financial Conduct Authority (FCA) should act quickly to prevent people being “penalised” for not being able to pay for a year’s insurance in advance.

His analysis found that annual rates of up to 45% could potentially be applied.

Researchers at Which? asked 49 car insurers and 48 home insurers how much interest they charged customers to pay for their monthly cover.

Among insurers that disclosed their rates, the average annual percentage rate (APR) for auto insurers was 22.33% and for home insurers was 19.83%.

Which? said these rates are comparable to credit card borrowing costs, although insurers have the option to cancel a policy if a payment is missed.

Two car insurers surveyed – NFU Mutual and Hiscox – do not charge monthly interest, while 19 home insurers do not, Which? found.

These home insurers were Age Co, Bank of Scotland, Halifax, John Lewis, Lloyds Bank, MBNA, M&S Bank, Nationwide Building Society, NFU Mutual, SAGIC, Sainsbury’s Bank, Santander, TSB, Yorkshire Building Society, Hiscox, HSBC, NatWest, RBS and Urban Jungle.

According to Which?, Co-op Insurance charged the highest annual interest rates for car and home insurance in the study, at 29.89%.

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 rates 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.”

Some insurers did not respond to Which? with their rates.

In addition, a mystery shopping survey conducted by researchers at Which? indicated that some companies were charging higher prices than those found among the companies that responded to their survey.

Car insurer iGo4 charged an APR of 45.10%, Which? said.

A spokesperson for Markerstudy Distribution, speaking on behalf of iGO4 and other providers, told Which?: “We understand the importance of providing quality finance to help customers purchase insurance products, particularly in today’s market. We strive to deliver good outcomes for our customers and regularly review the credit rates we offer them.”

Rocio Concha, Which?’s director of policy and advocacy, said: “Many customers who pay monthly for home or car insurance 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.”

She added: “Auto and home insurance policies are not nice-to-have options, but they are essential for motorists and homeowners.”

The regulator said companies offering premium finance must ensure their products offer fair value to their target market, including consumers paying monthly.

An FCA spokesperson said: “Premium finance is an important product, which many people rely on to pay for the insurance cover they need.

“Companies must ensure, and be able to assure us, that any product they sell offers fair value.”