| Link(s): | Falling cost of premium finance saving consumers around £157m a year | FCA MS24/2 Premium Finance Market Study | FCA MS24/2 Premium Finance Market Study: Final Report |
Context
The FCA has published the final report for its premium finance market study MS24/2. In its press release, the FCA sets out its view that the falling cost of premium finance are saving consumers around £157m per year, with over half the firms the FCA reviewed as part of a market study lowering the cost of premium finance due to regulatory attention, fair value assessments and base rate reductions. The review report reveals that overall costs have dropped, and many firms demonstrated fair value.
Throughout this market study, the FCA has sought to address poor consumer outcomes directly, without needing to make new rules. Where necessary, though, the FCA will pursue stronger supervisory action to address concerns around the provision of fair value and will continue to monitor prices in the premium finance market. Where any further competition issues arise because of its monitoring going forward, the FCA will use its supervisory and other regulatory tools to address any poor practices.
The report states that “The market is meeting the needs of many customers, but high prices persist. We [the FCA] want to see firms continue to focus on fair value and we will continue to review individual firms’ fair value assessments. We will monitor prices and act against individual firms if necessary.”
Key points to note
- Premium Finance remains a valuable product.
- Interest rates for premium finance have fallen by an average 4.1 percentage points since 2022, saving consumers £8 on a typical motor policy and £3 on a typical home policy per year. The changes result from regulatory attention, fair value assessments and base rate reductions.
- The FCA has seen even more significant changes made by firms it identified as at highest risk of not providing fair value, following direct engagement with them. These firms reduced APRs by 7 percentage points on average – saving £14 on a typical motor policy and £4 on a typical home policy per year.
- The FCA has confirmed it will not introduce a price cap or mandate that premium finance is provided without interest, as this could restrict access to important cover for customers who can only afford to pay monthly.
- Since the Consumer Duty came into force in 2023, firms have been required to undertake fair value assessments to demonstrate if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive. This includes premium finance products.
- There are no significant findings which will impact firms, and there are no proposed rule changes. The FCA will continue to monitor and supervise firms under the existing rules and particularly Consumer Duty and PROD and fair value assessments (FVAs).
The main findings:
- There are no significant findings which will impact firms, and there are no proposed rule changes. The FCA will continue to monitor and supervise firms under the existing rules and particularly Consumer Duty and PROD and FVAs.
- The FCA has seen firm ‘own initiated’ reductions in costs to customers, as well as some firms who have been nudged by the FCA to take action.
- A key message to firms is to ensure that they are carrying out FVAs on premium finance, standalone and together with the insurance as a package, reducing costs and taking action where required. The FCA’s focus on ensuring that customers get fair value when paying for insurance monthly has seen costs fall.
- The final report includes good and poor practice on a range of areas, including FVAs, whilst also acknowledging the role of the broker and relationship between the parties in the distribution chain.
- The report includes commentary on premium finance pricing models (chapter 4), the premium finance distribution chain (chapter 5, in which commissions / overriders are discussed), and the FCA’s next steps (chapter 6).
Good practice and areas for improvement are provided in relation to fair value in premium finance. These appear under a number of headings including the cost to the customer (prices), quality, vulnerability, collaboration between manufacturers and distributors, and cross‑subsidisation.