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- Insurance companies in the spotlight due to the level of premium increases for monthly payments
- This means not having to pay one large bill, but paying more for the same overall coverage.
- This affects the poorest the most, as they are the group least likely to face one-off bills.
Paying for insurance on a monthly basis could cost you almost 50 per cent more, according to research by consumer group Which?.
Drivers and homeowners who pay for their insurance in monthly installments face sky-high interest rates, with some charged up to 45 percent APR.
Which? is urging regulator the Financial Conduct Authority to intervene, labelling the practice a “poverty tax”.
Monthly margin: Drivers come under pressure when paying for car insurance on a monthly basis, as it usually means taking out a form of loan with an insurer, which often comes with higher premiums.
The two ways to pay for insurance are monthly and annually.
Paying monthly means avoiding the financial pain of a single, large bill. This is a particular problem in the case of car insurance, where average annual premiums are £622.
But paying monthly also means paying more for the same insurance, as most insurers charge extra for the privilege.
A study by Which? found that while the average APR for car and home insurance is 22.33 per cent and 19.83 per cent respectively, some providers charge much higher rates – with one company, iG04, demanding an exorbitant APR of 45.1 per cent.
For example, a 40-year-old driver from South London was quoted £996.65 for iGo4’s ‘More’ policy if paid for upfront.
But opting to pay monthly would increase the total to £1,158.11, a marked difference that penalises those who cannot afford to pay it all at once.
| Insurer | Average annual percentage rate | |
|---|---|---|
| 1. | The Insurance Cooperative | 29.89% |
| 2. | AA Insurance | 26.9% |
| 3. | Hastings direct | 26.9% |
| 4. | SecurePink | 26.9% |
| 5. | The people’s choice | 26.9% |
| 6. | The green insurer | 26.6% |
| 7. | Santander | 26.5% |
| 8. | Churchill, Darwin, Direct Line, Privilege | 23.3%-28.9% |
| 9. | Bank of Scotland | 23.5% |
| 10. | Halifax | 23.5% |
| Source: Which? Car Insurer Survey | ||
IG04 did not disclose its average APRs to Which?.
Other big names, such as Swinton, Hastings Direct and AA, charge APRs of between 26.9 per cent and 33.8 per cent.
Co-operative Insurance broker has the highest average APRs for both home and auto insurance.
| Column | Insurer | Average annual percentage rate |
|---|---|---|
| 1 | The Insurance Cooperative | 29.89% |
| 2. | AA Insurance | 26.9% |
| 3. | Hastings direct | 26.9% |
| 4. | 1. Center | 25% |
| 5. | Tesco | 23.5% |
| 6. | Churchill, direct line, privilege | 20.5%-23.4% |
| 7. | Admiral | c21% |
| 8. | Ages | 19.9% |
| 9. | RIAS | 19.9% |
| 10. | Aviva | 15% (average) – 19.9% (maximum) |
| Source: Which? Car Insurer Survey | ||
Co-op Insurance leads the pack when it comes to high interest charges, demanding 29.89 percent APR for both auto and home policies.
Meanwhile, NFU Mutual and Hiscox are two of the few that charge no interest on monthly payments, offering some relief in a market awash with high fees.
Penalizing the poor
Which? says many customers who pay monthly do so out of necessity, not choice, and claims the high interest rates charged by insurers are unfair considering the minimal risk involved.
Insurers can cancel policies if payments are missed, but still charge interest rates comparable to those on credit cards, where lenders face much greater risk.
Which?’s director of policy and advocacy, Rocío Concha, said: “Many customers who pay monthly do so not by choice, but out of financial necessity. That those same customers can end up paying more than they should compared to those who pay annually is clearly unfair.”
Which? wants the FCA to introduce an action plan that would force insurers to disclose their profit margins between monthly and annual payers, with deadlines for reducing APRs and consequences for those who fail to comply.
A Co-op Insurance spokesperson said: ‘Following a review of the credit rates set by our insurance partner Markerstudy Distribution, we have been able to reduce our rates for both car and home insurance over the past few months, and we continue to review this on an ongoing basis.
‘We openly share our credit ratings with both consumers and consumer associations as part of our commitment to transparency, and we are encouraging all providers within the industry to mirror this approach, as due to the number of providers who choose not to respond to such surveys, an accurate representation of the industry and the policies on offer is unattainable.’
A Markerstudy spokesperson said: ‘Providing choice to our customers is important to us and that includes giving them the option to pay monthly for their insurance.
‘Markerstudy Distribution has a variety of brands and within these we have a variety of risk profiles that we serve. In our effort to deliver good outcomes for our clients, we are working to reduce our APRs across a number of our brands as part of our ongoing review process. IG04 (serving telematics and non-standard vehicle insurance) is scheduled for review in Q4.’
Compare home insurance, car insurance and travel insurance
Avoid renewal blues and compare the best deals on home, car and travel insurance.
Every year, these bills can add up and the best way to save is to shop around to make sure your loyalty doesn’t cost you dearly.
Prices tend to be similar across most comparison sites, but can vary enough to make it worth checking out a couple.
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We suggest you:
HOME INSURANCE
Before you begin, you’ll need to know the cost of rebuilding your home for buildings insurance, plus details of previous claims. For contents, you need to know the total sum to be insured and any special or high-value items.
Also check Hotline and Aviva that do not appear on comparison sites.
CAR INSURANCE
Car insurance costs are sky-high and many drivers are finding that renewal quotes have skyrocketed compared to the previous year’s price.
Comparing costs is cheap and easy and can save most people money. We recommend checking out one or two of the following:
Further Hotline and Aviva that do not appear on comparison sites.
TRAVEL INSURANCE
It is a foolish traveller to go without insurance, even if it only covers medical emergencies. Compare before buying with:
Money supermarket
Compare offers from 35 leading suppliers
Confused.com
See how much you can save with a few days or annual policy
Try it too Hotline that does not appear on comparison sites and if you have serious pre-existing medical problems, consider a specialist insurer or broker.
