Britons are being charged an “eye-watering tax on being poor” by home and motor insurers a month, according to new research.
An investigation conducted by Which? found that some car owners are being slapped with annual percentage rates (APR) of nearly 40 per cent.
In comparison, the consumer champion’s analysis discovered some homeowners are paying nearly 35 per cent on monthly insurance payments.
Which? is calling on the Financial Conduct Authority (FCA) to take on action on insurance firms which are charging customers high amounts of interest on monthly repayments.
The watchdog asserts this penalises consumers who are left unable to pay for their coverage in a single lump sum.
Matt Brewis, the head of Insurance at the FCA, recently referred to premium finance as “a tax on being poor”.
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Insurance firms are under fire for skyrocketing rates by Which?
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Some 39 car insurers and 34 home insurers were asked by Which? what interest rates were being applied to payments every month. If there was more than one rate, they asked what made the difference.
For car insurers, the highest rate came 1st Central which charges between five per cent and 39.11 per cent, giving each customer a personal interest rate after a credit risk assessment.
Across 27 providers that charge interest and disclosed their rate, the average rate was revealed to be 23.7 per cent.
Notably, NFU Mutual and Hiscox were the only insurers which said they do not charge interest on monthly repayments.
10 car insurers refusing to disclose their rates to Which?, including AXA, Budget, Dial Direct, Esure, First Alternative, Geoffrey Insurance, Nutshell, Sheilas’ Wheels, Swiftcover and Zenith.
Out of the UK’s home insurance providers, the highest rate was charged by Co-op Insurance with customers paying between 31.31 per cent to 34.75 per cent APR on monthly payments.
The average among providers that charged a rate and disclosed it to the consumer watchdog was 23 per cent. 15 home insurance providers surveyed by Which? said they do not charge interest.
This includes Bank of Scotland, Halifax, Hiscox, HSBC, Lloyds Bank, MBNA, M&S Bank, Nationwide Building Society, NFU Mutual, Sagic, Sainsbury’s Bank, Santander, TSB, Urban Jungle and Yorkshire Building Society.
Only seven providers refused to share the interest rate they charged, including AXA, Bradford & Bingley, Budget, Dial Direct, Esure, Sheilas’ Wheels and Swiftcover.
Rocio Concha, Which? Director of Policy and Advocacy, said: “Motorists need car insurance to be on the road legally and the vast majority of mortgage lenders will insist on homeowners having cover – yet those who can’t afford to pay for their premiums all in one go are being penalised with eye-watering rates of interest.
“The regulator has been clear – paying for insurance monthly is a tax on being poor and it’s shocking to see providers still trying to justify the practice.
“Given many firms’ interest rates don’t seem to reflect the modest risk they’re taking on, customers paying monthly are being charged disproportionately more than those paying annually.
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Some households are paying an “eye-watering” rate of close to 40 per cent on their insurance premiums
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“It is now time for the FCA to step up and to get tough with firms that take advantage of customers who can least afford it.”
Markerstudy, which provides insurance under the Bradford & Bingley, Budget, Dial Direct, Zenith, Geoffrey Insurance and Nutshell brands, told Which? it performs “regular assessments (at least annual) on the rates of credit we offer our customers”.
The firm asserted it was “confident that we have the appropriate governance, oversight and controls” to make sure premium finance provided fair value to customers.
An Axa spokesperson said: “We believe that using representative APR provides an inaccurate comparison of the interest rates insurance companies charge to customers for paying monthly. This is because firms calculate representative APR in different ways.”
First Central added: “We understand it is important to customers that we keep the price of insurance as low as possible – and benchmarking tells us that we are competitive for both annual premiums and for those that wish to pay monthly through a credit arrangement.”
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