Interest rates for premium finance have fallen by an average 4.1 percentage points since 2022, saving consumers £8 on a typical motor policy and £3 on a typical home policy per year. The changes result from regulatory attention, fair value assessments and base rate reductions.  

The FCA has seen even more significant changes made by firms it identified as at highest risk of not providing fair value, following direct engagement with them. These firms reduced APRs by seven percentage points on average – saving £14 on a typical motor policy and £4 on a typical home policy per 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.”

In 2023, nearly half of motor and home insurance policies (about 23 million) were paid monthly, often because customers couldn’t afford annual payments.

The FCA has confirmed it will not introduce a price cap or mandate that premium finance is provided without interest, as this could restrict access to important cover for customers who can only afford to pay monthly.

The regulator expects all firms to consider whether further changes are needed to their premium finance offerings to meet fair value requirements. To help them, it has shared examples of good and poor practice seen across the premium finance market.