Members of the Association of British Insurers (ABI) have pledged to implement new measures to control the costs for motorists who opt to pay their insurance premiums monthly.
The principles of premium finance, which include transparency, affordability, fair value, proportionality and accountability, are designed to manage these costs.
Recent findings from consumer group Which? suggest that some insurers’ rates for monthly cover are comparable to credit card interest rates.
The ABI has stated that any charges should be clearly communicated to customers and should be reasonable in relation to the insurer’s costs.
By summer 2025, the ABI plans to release a report on the effects of these principles.
The principles of premium finance are as follows:
1. Transparency Insurers should provide a clear comparison of the total annual cost and the total monthly cost when outlining any costs for paying in monthly instalments.
They should also publish clear, up-to-date information about their average or common premium finance charges.
2. Affordability When determining their premium finance offerings, insurers should consider that many consumers cannot afford to pay their insurance premiums in one lump sum.
Therefore, charges for monthly payments can disproportionately affect those who can least afford them.
3. Fair value Insurers must ensure that the costs associated with monthly instalments represent fair value.
4. Proportionality The charges should be fair and relative to the costs of providing premium finance for monthly payments.
Insurance firms should also keep in mind charges in relation to alternative payment methods that are comparable and easily accessible, like credit cards.
5. Governance and accountability Insurance companies must periodically review the cost imposed on customers due to premium finance.
They must ensure senior management is accountable for this.
Mervyn Skeet, director and head of general insurance policy at the ABI disclosed, “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.”
Rocio Concha, Which? Director of Policy and Advocacy, expressed, “Car insurance is a legal requirement for motorists, yet many people who can’t afford to pay for their annual premiums in one go are being hit with eye-watering levels of interest on monthly payments of up to nearly 40 percent which can add on hundreds of pounds a year.”
“While it’s good to see the insurance industry finally recognising that this is a huge problem, waiting another year for the ABI to publish its findings when insurers should already be doing this is not good enough.”
