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UK: FCA thematic review on premium finance
Insurers and insurance intermediaries do not always provide consumers with clear and appropriate information on the payment options available when buying insurance products, the Financial Conduct Authority has found.
The aim of the FCA's thematic review on the Provision of Premium Finance to Retail General Insurance Customers was to assess whether firms were providing appropriate information to consumers to enable them to make informed decisions on payment for general insurance products. This was assessed by following the customer's 'online journey' to the point of inputting payment details.
The review, focussing on motor and household insurance, took place between October 2014 and January 2015 and involved a review of 13 general insurers and 30 general insurance intermediaries (including 4 price comparison websites).
The FCA concluded that insurers and intermediaries do not always take steps to provide sufficiently clear and appropriate information at the initial stage to allow customers to compare the overall cost of paying for an insurance product in monthly instalments or upfront, in full. The FCA found that in some cases, customers may not realise there was a financial difference between the two.
Linda Woodall, acting director of supervision at the FCA said: "Consumers should expect clear information about the payment options available to them. Regardless of whether people choose to pay upfront or in instalments, it's important that they can see exactly what they are signing up for and how much it costs so they can decide whether they are getting a fair deal."
The report found that when firms are providing regulated credit or credit broking, a representative example (e.g. the interest rate and the annual percentage rate) is commonly not provided (or provided too late in the 'purchase journey') so that customers are less likely to be able to understand the costs of the finance arrangement and to assess whether the product meets their needs and financial situation. This, together with the finding that some APRs were in excess of 75%, highlighted the need for appropriate and clearly presented information to be given to customers at the outset.
The FCA also found that firms acting as credit brokers do not always provide clear information to customers on the identity of the lender and any commission or remuneration arrangements between the credit broker and the lender. This could further limit customers' ability to make an informed decision. This builds upon warnings given to brokers about best practice in arranging premium finance plans in the FCA's Factsheet for General Insurance Brokers Acting for Commercial Customers, published in March 2013.
Implications for insurers and intermediaries
As a result of these findings, the FCA has stated it expects all firms to review their 'customer purchase journey' and take appropriate action.
The FCA will engage directly with individual firms and may consider using the full range of regulatory tools where shortcomings are evident. The FCA is also intending to engage with consumer bodies to increase consumer awareness and will monitor firms' compliance with these recent findings.
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