City watchdog investigations pay monthly insurance offers amid fears they do not provide fair value

Home and car insurance deals that allow households to pay in monthly installments are facing an investigation by the City watchdog over fears they do not provide fair value.

The Financial Conduct Authority (FCA) said it has been “concerned” about these arrangements, known as premium financing, for some time.

The regulator warned that rising insurance premiums could be making the situation worse.

Some providers charge the same total amount whether the customer pays up front or in monthly installments.

But in most cases, customers who pay in installments face higher payments because they are charged a fee for offering credit.

The average amount collected ranges from 20 to 30 percent in addition to the premium.

The watchdog will investigate whether the products represent reasonable value, the role of the commission, how well customers are informed about their financing options and potential barriers to effective competition.

Graeme Reynolds, FCA competition director, said: “People rely on premium financing to spread the costs of their insurance by paying smaller monthly payments.”

We want to make sure competition works well and make it easier for consumers to find the best deals.’

More than 20 million customers are believed to pay their insurance premiums using these products, while almost four in five adults in financial difficulty have used them.

Darren Richards, of consultancy Broadstone, said: “Many may not be aware that many of the insurance products they buy on a monthly basis include a premium financial product and could therefore be more expensive.”

“While many find it helpful to spread the cost monthly, insurers should communicate product terms simply and clearly so customers can make an informed decision and offer fair value.”

Consumer group Which one? It previously urged the watchdog to act after discovering that insurance customers who can only afford to pay monthly are being hit with excessive interest rates of up to 45 per cent.

Association of British Insurers chief executive Hannah Gurga said: “We are aware of how difficult the last few years have been for motorists and we have been working hard with our members to address the cost of claims impacting premiums. “.