Insurers slammed for ‘double dipping' customers and it adds up to £51 a year to bills – how to avoid it

The Sun

7 days ago

INSURANCE companies have been accused of piling hidden costs onto customers who choose to pay in monthly instalments.
Some consumers choose to use premium finance, aka paying in instalments rather than in one lump sum, to spread costs.
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But concerns have been raised by regulator The Financial Conduct Authority (FCA) that some insurance companies are earning much more money than it costs to provide a premium finance service.
Insurers will generally charge customers extra to pay in monthly instalments rather than yearly.
But the FCA believes some "pay monthly" customers are also being forced to pay more for the insurance itself.
This is a practice sometimes described as "double dipping", and it means you could be left more out of pocket.
Insurers have said some customers paying monthly use payment methods that increase risk.
Around half of motor and home insurance policies were paid for in monthly instalments in 2023.
Some people might simply prefer to spread the cost but others cannot afford to pay annually.
Last year, 60% of motor policyholders who paid through premium finance said they did so because they couldn't afford to make a single annual payment.
Usually, insurance companies charge APRs of between 20 to 30% to customers choosing to pay by premium finance.
In some cases it can be more than 30%.
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This would cost an extra £19 to £28 on an illustrative home policy and £35 to £51 on an illustrative motor policy – suggesting it costs consumers typically between 8% and 11% more to pay monthly rather than annually, the regulator said.
Ealier this year, consumer champion Which? asked 52 car insurers and 46 home insurers what rates of interest they charged customers to pay for cover monthly.
Among the insurers that responded, Which? identified the highest APRs were being charged by One Insurance Solution and The Insurance Factory.
One Insurance Solution applied rates of 30.72% to 34.08% for home insurance, while The Insurance Factory imposed the same rates for car insurance.
The consumer group highlighted that these rates are comparable to the borrowing costs of credit cards (35.42%), despite credit card providers taking on significantly higher risks when extending credit.
More than a third of home insurance customers pay no more for paying monthly than annually, compared with less than 3% of motor insurance customers.
Companies do have extra costs when they offer premium finance, including for staff, IT and compliance.
Plus they might have funding costs or must sacrifice investment income by delaying the date of full payment.
Credit products are also priced to compensate companies for high levels of bad debt or default.
But the FCA's rules mean companies should not increase the insurance premium for customers using premium finance without a reasonable basis.
It said in its latest update: "Where firms charge for premium finance, revenues appear to materially exceed costs for some providers.
"Whereas the profit margin earned on a core insurance policy may be relatively low, we see margins on premium finance that are somewhat higher."
Association of British Insurers (ABI) director general Hannah Gurga said: "Having the option to pay for insurance in monthly instalments can provide flexibility for those who need to manage their budgets.
"Offering this service does involve costs for insurers and firms also have to keep cover in place for a period of time if a payment is delayed or missed.
"Our premium finance principles, which we published last year, outline that any charges should be fair, transparent and reflective of the costs that the insurer faces.
"We'll continue to work with our members on this matter and engage with the FCA's review."
How you could avoid paying extra
It is worth noting that if you don't have the cash to pay for your insurance upfront, you could find other ways of spreading the cost without high APRs.
For example, you could use a 0% interest credit card.
If you do this you must make sure you pay it off on time.
Some banks also allow you to spread the cost of certain payments.
For example, online bank Monzo has a Flex feature that lets you pay off some of your outgoings over the course of a few months.
'Concerning' evidence on how insurance claims handled
The FCA also looked into how insurance companies handle motor insurance claims.
It said it found "concerning" evidence of poor practices, including delays in settling claims, lack of oversight on outsourced services, and high levels of complaints.
It also found evidence of failures to promptly identify and resolve claims handling issues, as well as cash settlements being used in some cases where it might not have been suitable.
The FCA said it is addressing the issues directly with the companies involved, including taking action against some of them.
How to get cheap car insurance
CAR insurance is an essential cost that you hope to never use but will need to cover the costs of theft or damage to your vehicle.
It's a legal requirement to have car insurance, and going without it could land you with a £300 fine, six penalty points on your licence and even a criminal conviction.
But there are several ways to slash your premiums.
Pay upfront
Insurers give you the choice of paying for insurance monthly or upfront.
Paying monthly spreads the cost of your cover but the insurer adds interest charges which means the average motorist pays around ten per cent more overall.
If you pay for your car insurance annually you don't pay any interest.
A typical motorist can save up to £225 a year by paying in one go, according to comparison site MoneySuperMarket.
Increase your excess
The excess is what you agree to pay each time you need to make a claim on your policy.
You can usually choose your own excess when setting up a policy and it can be as low as £100 and as high as £500 or more.
The higher your excess, the lower your premium and vice versa.
This means you could bring the cost of your insurance down by agreeing to pay more if you do need to make a claim.
But before you hike your excess, make sure you would be able to pay in the event that you do need to make a claim.
Tweak your job
Certain jobs are seen as more risky than others for insurance purposes.
Making small but accurate changes to your job title can save you money.
For example, swapping your role from "chef" to "caterer" can save you £20, comparison site GoCompare found.
And changing your role from "fast food delivery driver" to "delivery driver" could save you £40.
But lying about your job could invalidate your policy so make sure any changes are legitimate and accurate.
Shop around
Not all comparison sites have the same range of insurers so to get the best price it's a good idea to check two or three from Go Compare, Comparethemarket, MoneySupermarket and Confused.com.
Insurer Direct Line is also not on comparison sites so check its prices directly.
You can also get a free cash bonus by going via a cashback site such as Topcashback or Quidco.
Save the date
Renewing your car insurance sooner rather than later could save you some cash.
New cover becomes more expensive the closer you get to the renewal date.
But you can buy your car insurance up to 29 days before the policy start date and 'lock in' the price you're quoted on that day.
A typical driver can save up to £265 buying new cover at least 27 days before their current policy ends, according to Go Compare.