Car insurance firms agree to steps on monthly fee premium

Members of the Association of British Insurers (ABI) have committed to new steps to try and manage the amount that those paying monthly for their motor insurance and are charged for the benefit.

The ABI set out the steps that the industry is taking to combat the rise in the cost of motor insurance at its conference in February. A focus on premium finance is an important part of this work, and while a voluntary industry-led cap on premium finance charges was considered and discussed with the FCA, the principles represent what is possible within the limits allowed by competition laws and provide a basis for firms to take meaningful action.

The pledges include companies giving customers clear cost comparisons between the two payment options and publishing the average finance charge. The ABI has committed to publish a report by Summer 2025 on the impact of these principles on premium finance for motor insurance customers.

Motor insurance affordability is one of three highlighted consumer issues in the ABI’s Financial Inclusion Strategy, launched today, alongside reducing the impact of ill health on financial security and filling the pensions advice gap.

Motor insurance costs have been a particular focus after claims inflation led to the cost of premiums rising 25% in 2023. EY estimates that in 2023 for every £1 paid in premiums, insurers incurred £1.14 in claims and expenses.

Mervyn Skeet, Director, Head of General Insurance Policy said “The principles announced today are one of a raft of actions we are taking to tackle the cost of motor insurance, which we know is putting pressure on households, especially those on lower incomes. We are doing all that we can within our reach asa trade body for insurers and hope that other organisations involved with premium finance follow our lead.”

“We’re also looking to investigate policy steps that could help low-income households specifically, as well as deliver on our broader Roadmap to tackling costs. This includes a call on the government to reduce insurance premium tax (IPT), especially when they are bringing in record tax revenues as a result of higher prices.”

The Premium Finance Principles include explanation of why insurers charge for pay-monthly namely that it incurs administrative costs and the insurer is unable to invest an annual sum or use those funds to pay claims.