Monthly insurance costs cut by £157m a year after premium finance rates fall

Consumers paying for insurance on a monthly basis are saving around £157 million a year combined after firms cut premium finance rates, according to the UK’s financial watchdog.

The Financial Conduct Authority (FCA) said interest rate premiums on monthly payments have fallen by 4.1 percentage points on average since 2022, which has saved consumers £8 on a typical motor policy and £3 on home cover a year.

The regulator said this came after it put the spotlight on the sector in a market study launched in October 2024 amid concerns some firms were not providing fair value for those paying monthly.

Among firms it identified as being at highest risk of not delivering fair value, consumers have saved even more – at £14 on a typical motor cover and £4 for a home policy each year.

Graeme Reynolds, director of competition and interim director of insurance at the FCA, said: “For millions, paying for insurance monthly is not a choice: it’s a necessity.

“We found that competition in the market is meeting the needs of many consumers.

“But where we found issues, we used our Consumer Duty to get people fairer value, without needing to write new rules.

“While we’re not planning any market-wide changes, we won’t hesitate to act if firms fall short of our expectations as we continue to monitor fair value.”

The FCA found in 2023 that nearly half of all motor and home insurance policies – around 23 million – were paid monthly as under-pressure consumers looked to spread the costs and were unable to afford to pay annually.

Paying insurance premiums monthly is more expensive than paying upfront, as providers charge annual percentage rates on the amount, similar to a high interest loan.

But the FCA confirmed it would not introduce a price cap or order firms to provide zero-interest cover for monthly payments, as it said this could “restrict access to important cover for customers who can only afford to pay monthly”.