New car insurance rules for drivers who pay monthly after 'huge problem' sparks fury
Car insurance premiums can be much cheaper if paid for annually upfront compared to monthly. But critics say the price difference is not made clear and monthly payers are penalised with charges resembling credit card interest.
NimbleFins previously reported car insurance costs drivers £300 more when paying monthly.
The Association of British Insurers (ABI) has announced five Premium Finance Principles which it urges providers to follow to give customers a fair deal.
Overall, the principles say the extra monthly charges - known as premium finance - should be clearer to consumers and reasonable.
Fair practice, the ABI says, revolves around transparency, affordability, fair value, proportionality and accountability:
- Transparency: Provide a clear comparison of annual and monthly prices and publish common or average premium finance charges every year.
- Affordability: Insurers should acknowledge those paying monthly are often the people who can least afford it.
- Fair value: Consider how income from monthly charges compares to up-front payments and ensure this is fair value.
- Proportionality: Ensure monthly charges are relative to the cost of providing it, as well as comparable to alternative financing options like credit cards.
- Governance and Accountability: Regularly review monthly charges.
Although the principles are voluntary, the ABI told NimbleFins all its motor insurance members – including Direct line, eSure and Allianz, had signed up to the rules.
They have been devised in collaboration with the insurance industry and are now being followed by members.
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The ABI will publish a report by summer 2025 on the impact of the principles.
However, Rocio Concha, Which? director of policy and advocacy, said analysis was needed sooner.
She said: "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% 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."
The average cost of car insurance rose by a third - or £157 - in the first quarter of 2024 compared to the same period last year.
The ABI encourages drivers to compare the market to ensure they are getting the best deal for their circumstances.
It said it was taking a raft of actions to tackle the cost of car insurance.
Mervyn Skeet, director and head of general insurance policy at the ABI said: "We are doing all 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.”
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