At Pearson Ham Group, our latest analysis shows a decline in premium finance costs for motor and home insurance over the past year. This follows increased regulatory scrutiny from the Financial Conduct Authority (FCA), which has raised concerns about whether premium finance offers fair value to customers.
On 16 October 2024, the FCA announced a formal market study into premium finance in the insurance sector. Their focus is on understanding whether competition is functioning effectively and if rising premiums are impacting fairness for consumers.
Key Findings: Lower Costs and Increased Competition
Our data reveals that the average cost of financing motor insurance premiums has decreased from 11.9% in October 2023 to 10.7% in September 2024. Home insurance premium finance costs have seen a sharper decline, dropping from 10.0% to 8.3% over the same period.
However, there remains significant variation across the market. For motor insurance, premium finance charges range from as low as 1.9% to as high as 20.2%. Home insurance displays even greater differences, with some providers offering no additional charge for monthly payments—such as Sky Protect and John Lewis—while others charge as much as 36.8%.
Upfront Deposits Also Decreasing
In addition to finance charges, we’ve observed a reduction in the upfront payments required by insurers. For motor insurance, the average deposit or initial payment fell from 13.6% in October 2023 to 12.7% in September 2024. Home insurance followed a similar trend, with the average deposit decreasing from 11.7% to 10.8%.
Overall Market Trends
These findings highlight a positive downward trend in premium finance costs, driven in part by increased competition. Several major insurers, including AXA and First Central, have reduced their charges, and new entrants in the home insurance market have introduced competitive products below the market average.
While premium finance costs are falling, we continue to see contrasting trends in insurance premiums themselves. Motor insurance prices have dropped by 8.5% compared to September 2023, while home insurance premiums have surged by 22.5% over the same period.
At Pearson Ham Group, we’ll continue to monitor these trends closely, keeping you informed of key developments in the insurance pricing landscape.
