Association of British Insurers introduces Financial Principles
Insurance is never cheap, and when faced with a choice of paying annually or monthly, many are unable to fork out a large sum, so they pay monthly. However, making monthly payments for insurance is usually more costly than paying once a year. Consumer expert looks at the latest proposals.
In its new “Financial Inclusion Strategy”, the Association of British Insurers (ABI) have gained commitment from its members to “try and manage the amount that those paying monthly for their motor insurance are charged for the benefit.”
Today, 24 April 2024, the ABI announced its “Premium Finance Principles”. It says that these underline what fair practice should look like and revolve around five elements: Transparency, affordability, fair value, proportionality and accountability.
The ABI had discussed with the FCA the possibility of a pricingcap but decided against it.
“The Premium Finance Principles:
- Transparency: When setting out any cost for paying by monthly instalments, insurers should provide a clear comparison of the total cost of paying annually and the total cost of paying monthly. Insurers should also publish up-to-date, clear information about their common or average premium finance charges.
- Affordability: When deciding on their premium finance offering to customers, insurers should have regard to the fact that many consumers cannot afford to pay for their insurance up front, in one lump sum and so charges for paying by monthly instalments can fall hardest on those who can least afford it.
- Fair value: Insurers must ensure that costs associated with monthly instalments represent fair value. As part of this, insurers should consider how any income from premium finance compares to their income on the core premium.
- Proportionality: Insurers should ensure that charges are reasonable, relative to the costs of providing premium finance for monthly payments. Insurers should also consider charges relative to comparable and accessible alternative payment options, such as a credit card.
- Governance and Accountability: Insurers must regularly review the cost to customers of premium finance, using suitable information or data to ensure any charges remain appropriate. They should ensure the right level of senior management accountability for their approach taken on premium finance charges and its impact on consumers.”
I think these proposed changes are pretty meaningless.
For example what does “charges are reasonable” mean? Who is deciding what is reasonable? The insurers? There is no maximum amount that customers should pay per month above the annual premium, either as a total or percentage. Surely any additional cost to the insured person should be relative to the actual costs of paying monthly?
And I do understand that there are additional costs for the insurer associated with monthly payments. If, for example, a customer paying monthly misses a payment, the insurer continues to provide cover (without having been paid for it) until the missed payment is received or the policy is cancelled. Additionally, the ABI also notes that insurers can invest the annual payment as a lump sum, in a way they can’t with monthly payments.
The industry needs definitive and clear rules. It is ironic that the ABI calls for “transparency”, yet the transparency it calls for is in itself not transparent!
The ABI has committed to publish a report by Summer 2025 on the impact of these principles on premium finance for motor insurance customers. I wonder how transparent this will be and how many consumers it will speak to regarding any changes they have experienced.
Don’t be tempted to lie to get a cheaper quote
You risk the company not paying out, not being able to get insurance again, a fine and even prison for up to six months for fraud.
The Association of British Insurers 8 myths about insurance fraud busted.
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