A HOST of insurers have been named and shamed for charging excessively high interest rates to customers just because the pay monthly.
Consumer group Which? asked 49 car and 48 home insurers how much they charge customers who pay in instalments.
Its researchers found several are charging high levels of interest, penalising customers who can’t afford to pay for a whole year upfront.
Paying for your insurance monthly is an option if you don’t have the money to cover the full cost at once, but insurers charge you interest on top as they are taking on more financial risk.
Which? found among the insurers that disclosed its interest rates, the average annual percentage rate (APR) for car insurance was 22.33% and 19.83% for home insurance.
The consumer group said these rates were comparable to borrowing costs for credit cards, despite the fact credit card lenders face a much greater risk when offering credit.
This is because they stand to lose any outstanding balance if customers default on payments.
In contrast, insurers can cancel a policy if a customer stops paying.
Of the insurers that responded, Which? found Co-op Insurance charged the highest rate of 29.89% for both car and home insurance.
It also found the AA and Hastings Direct charged 26.9% for car and home insurance.
Co-op Insurance said it had reduced its rates for car and home insurance in recent months and “openly share our rates of credit with both consumers and consumer bodies as part of our commitment to transparency”.
AA Insurance Services said it “remains confident that we offer a fair and affordable way for people to pay for their home and motor insurance”.
Hastings Group said it always tries to “ensure our product remains competitive and continues to provide value to our customers”, adding that it is “constantly reviewing how competitive our products are”.
Two car insurers – NFU and Hiscox – do not charge any interest to customers paying monthly, while 19 home insurers also do not.
Among those was Halifax, Bank of Scotland, Nationwide, NFU Mutual and Santander.
Esure and Sheilas’ Wheels, both part of the esure Group, told Which? they would not participate in the survey.
Other insurers did not respond to Which? when asked what interest rates were for customers paying in instalments instead of yearly.
However, its researchers carried out mystery shops of the car insurers that did not take part to see what they charge.
They uncovered a handful are charging even higher rates than among the list of those that did respond.
This included car insurer iGo4 which charged a staggering 45.1% – the highest rate of all the providers by some margin.
Which? said this means that customers paying monthly could end up paying as much as £161 extra for iGo4’s “More” policy over the course of a year than those who can afford to pay upfront annually.
Swinton was found to charge 33.8%. Dial Direct, Nutshell and Zenith Insurance charged rates of 29.9%.
Esure and Sheilas’ Wheels said: “We regularly assess our premium finance offering to ensure it constitutes fair value and delivers good customer outcomes.”
A spokesperson for Markerstudy Distribution – speaking for iGO4, Swinton, Dial Direct, Nutshell and Zenith – said: “We strive to provide good customer outcomes and regularly assess the rates of credit we offer customers.”
Based on its findings, and following a similar survey carried out in March, Which? is calling on the Financial Conduct Authority (FCA), which regulates the UK’s financial services industry to take action.
The consumer champion said it wants the FCA to stop firms from charging excessively high rates of interest.
It cited FCA research which found that people who were most likely to pay for their insurance monthly were in financial difficulty.
Which? called on the FCA to come up with an action plan and collect data on the cost to firms of providing premium finance and the difference in their profit margins between customers paying monthly and those paying annually.
It should then make clear where insurance companies’ pricing practices are failing to meet fair value requirements, set deadlines for firms falling short to reduce their APRs and take enforcement action against any firms that do not sufficiently address failings, it said.
In response to Which?’s call, a FCA spokesperson said: “Premium finance is an important product, relied on by many people to pay for the insurance cover they need.
“Firms need to assure themselves, and be able to assure us, that any product they sell provides fair value.”
An ABI spokesperson said: “Our members understand how important access to appropriate insurance is for their customers and are very aware of the financial pressures households are currently under.
“Paying monthly is one option people have to manage their premiums, and our Premium Finance Principles are intended to make sure the costs involved are clearly explained to customers, reasonable, and relative to those incurred by the insurer.
“The Principles represent what was possible for industry to accomplish within the rules of competition law.”
The Sun spoke to managing director of Fairer Finance, the independent consumer group and ratings provider, James Daley.
James said: “Insurers and brokers have been charging high interest rates for many years.
“Things got a bit better this year after the FCA signalled it was unhappy with the status quo – but some firms have ignored the warnings and continue to charge too much.
“Given that motor insurance premiums have risen sharply in recent years, many people have been forced to pay by instalments – with high interest rates adding insult to injury.
“It’s time that the FCA and Government look at how to ensure motor insurance is affordable and accessible for those with limited resources – and that will inevitably need to include a look at the interest rates charged to customers.”
The obvious way to not have to fork out more in interest on your car or home insurance premium is by paying yearly.
However, not everyone can pay for it up front – but there are ways around this.
James Daley, managing director of Fairer Finance, said it can be worth taking out a 0% credit card to pay for your insurance.
This means you can pay for your premium up front, then pay off the credit card before the 0% term comes to an end.
But bear in mind if you don’t pay off the credit card during the 0% interest period, you will start to be charged interest.
So only take one out if you know you will be able to pay everything back in time.
If this isn’t an option for you, you will have to pay monthly, James said.
However, it’s worth shopping around for the best deal so you don’t have to pay an excessive amount of interest.
You can use price comparison sites like Uswitch, GoCompare and MoneySuperMarket which trawl the internet for some of the best deals.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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