Anthony Jones Insurance Brokers wholeheartedly supports two major steps in the right direction on the affordability of motor insurance and premium finance charges.
FCA’s Review of the Premium Finance Market – Are You Receiving the Best Value For Money?
The Financial Conduct Authority (FCA) have launched a review of the insurance premium finance market. The review will focus on whether people who borrow to pay for motor and home insurance are receiving fair, competitive deals.
Premium finance allows people to pay for insurance in instalments. Finance can be provided directly by insurers, or by insurance brokers or other third parties. More than 20 million people are estimated to pay for their insurance using premium finance, and FCA research shows that 79% of adults in financial difficulty have used a premium finance product.
The average yearly rate on the amount of money borrowed ranges between 20% to 30%. The FCA is concerned that premium finance may not be providing fair value. In addition, they will consider how well customers are made aware of their financing options, and how commissions and other factors may act as a barrier to effective competition.
A Landmark Ruling For Consumer Rights Over Car Finance Firms
In recent weeks we have also seen a landmark court ruling that favours the consumer over car finance firms. The Court ruled that a car sales firm couldn’t lawfully receive commission from a finance firm unless it had the customer’s ‘fully informed consent’. To have fully informed consent, the customer would need to be told all ‘material facts’. This would have to include how commission was calculated and how much would be paid.
This is crucial, as in 2021 the FCA banned discretionary commission arrangements, which removed the incentive for brokers to increase the interest rate that a customer pays for their motor finance.
It seems that the FCA is not convinced that their ruling has been effective enough. So once again, they have focused on hidden, unfair car finance commission. This could lead to billions of pounds of overcharged interest paid back to millions of people.
We cannot stress enough how big a deal this is. It could make PPI claims look small in comparison. Expect to see a raft of publicity and how to make a claim.
How Will The Changes to Car Finance Affect The Premium Finance Market?
Financial disarray in the car finance market will have a direct impact on the premium finance market. Following this court ruling, and the wider movements of the FCA, we are fully anticipating that the insurance premium finance providers will take immediate action to avoid further issues around treating consumers fairly.
We expect to see mandatory disclosures of insurance brokers’ earnings on individual pieces of business placed via them, and potentially any volume related earnings too.
But it may not be all good news for consumers. We also expect some brokers to react to these changes through increasing their fees. So, we’d advise all insurance buyers to pay close attention to the fees that insurance brokers charge and the cost of finance.
Remember, the cost of your insurance is made up of three things:
- Premium – Ask your broker what commission they are earning, as this will form part of an insurer’s calculations.
- Insurance Premium Tax – 12% added to bills to go to Government.
- Cost of Finance – Do you know if you can get a better deal?
You Can Depend On Anthony Jones For Transparency and Value
Anthony Jones is very clear in helping our personal and commercial customers with premium finance options. We’re driven to ensuring our customers can make informed decisions and receive genuine value from the insurance products they consider.
We are classed as an “Introducer”. This means that we have a dual role of both arranging insurance cover and acting as a credit broker when arranging premium finance. This enables us to get the best deals for our clients. And we are always more than happy to disclose any finance arrangements.
Our commitment is to be completely transparent with our customers in:
- The amount of credit being provided.
- The percentage of commission we are receiving on that credit
- The amount in pounds we are receiving as introducers
We are confident in what we do and how we act in providing premium finance. Our customers can depend on us to choose the right cover at the right price, while offering expert and impartial advice on any finance that might be required.
Costs of Car Insurance
On 16 October 2024, The Department for Transport announced it has brought together industry groups, consumer champions, and the Financial Conduct Authority (FCA), to tackle “spiralling costs” of car insurance.
The taskforce will examine why motor insurance premiums have grown by an average of 21% since June 2022, according to the FCA.
The group will also be tasked with identifying the causes of rising costs, assessing whether consumers are receiving fair value for money while looking at the impact on the groups hit the hardest.
Why Are Motor Insurance Premiums Rising?
There are a number of reasons as to why many policyholders will have seen their premiums go up:
- An increase in the overall number of accidents in recent years, including a rise in whiplash claims. More accidents mean more claims, which invariably results in higher premiums for most policyholders.
- The average cost of repairs has risen at a rate that’s higher than the inflation rate. This means that insurers will have to pay out higher settlements, which many will offset with higher premiums.
- The prevalence of insurance fraud and motor theft.
- Poor disrepair of our roads, which will lead to a rise in claims for pothole related damages.
- Insurance Premium Tax (IPT) set by the Government. The higher the IPT rate, the higher the premiums for many insurance products.
- Recent changes to the Personal Injury Discount Rate (PIDR) may also have impacted the price of insurance premiums.
We are happy to support our strategic insurance partner DAC Beachcroft in the claim’s environment.
