A significant proportion of UK consumers use premium finance to enable them to pay for their general insurance cover in monthly instalments. The Financial Conduct Authority (FCA) has now published the results of a thematic review into how premium finance is offered by insurers and intermediary firms as an alternative to paying the premium up-front and the extent to which firms are providing customers with sufficient information to enable them to make informed decisions. The FCA review focused specifically on online sales of private motor insurance and household insurance. The results of the review, published on May 11, reveal that many firms are not providing customers with sufficient information to help them to make informed decisions when purchasing premium finance.
Results of the thematic review
The FCA found that firms did not always provide clear information on different payment options and the associated costs of each option. As a result, customers may not have a full understanding of the increased costs of paying for their cover through premium finance. Furthermore, the FCA has found that in many instances, firms were not in compliance with their various regulatory obligations under the FCA Handbook. Where a customer chooses to pay in instalments, the FCA has found that firms do not always provide the customer with sufficient pre-contractual information, resulting in a risk that customers cannot assess the suitability of the finance arrangements. The FCA also found that firms arranging premium finance do not always provide clear and consistent information to ensure that customers understand the role that the firm plays in arranging credit and how they are remunerated.
The FCA expect firms to consider the results of the thematic review and to ensure that they comply with their regulatory obligations under the Principles for Businesses (PRIN), the Insurance Conduct of Business sourcebook (ICOBS) and, where the firm is conducting a regulated credit activity, the Consumer Credit sourcebook (CONC). All firms assisting their customers with access to premium finance should take a look at the purchasing journey that the customer follows to ensure that the right information is being provided to the customer clearly and with sufficient detail to enable them to make an informed decision about whether premium finance will be suitable for them. In particular, firms should ensure that the price payable for premium finance is clear, both in terms of the cost of each monthly instalment and the total amount payable. Where firms are providing premium finance under a regulated credit agreement or through credit broking, CONC requires that a representative example setting out fees and charges, an annual representative percentage and the overall cost of the product should be provided. Firms should provide customers with clear information about their role in arranging premium finance and should be transparent about any fees or commission payable for such services.
The provision of premium finance to enable customers to spread the cost of their insurance premiums is an important aspect in the retail insurance market, and certainly one that consumers rely upon. Clearly, the regulator is concerned that the cost of such arrangements is not sufficiently transparent at present and that customers are often paying more than they need simply because they are unable to clearly see how much a finance arrangement will cost. The results of this latest FCA thematic review add to the regulatory mantra that firms should be doing more to provide customers with clear information about what they are buying and the cost for comparison with alternative products. Inevitably, the provision of more information in an accessible form for customers requires that far greater thought is given to the design of online sales channels.
TR15/5 Provision of premium finance to retail general insurance customers, 11 May 2015