Consumer advocates are calling for immediate measures to prevent insurance companies from imposing hefty fees on customers who opt to pay their premiums monthly instead of in one lump sum. Which? experts have highlighted that some brokers and firms significantly hike the price of motor and other policies by charging interest rates as high as 45 percent for those who choose to spread the cost over the year.
Transport Secretary Louise Haigh and Treasury minister Tulip Siddiq have rallied the competition authority and the chief financial regulator to form a taskforce with industry and consumer representatives, aiming to “agree solutions to keep costs under control”. This move follows the government’s announcement that motor insurance premiums have surged by 21 percent since June 2022, outpacing rises seen in similar European nations.
The taskforce will pinpoint the reasons behind the steep increase in premiums and work towards keeping them in check. Among the factors contributing to the insurance price hike are inflation, a spike in vehicle thefts, and the UK’s pothole-plagued roads, which the government has vowed to address by committing to repair up to 1 million additional potholes each year.
This taskforce initiative is part of the government’s pledge outlined in its manifesto to tackle the soaring insurance costs that disproportionately impact certain groups, including young and elderly drivers, ethnic minorities, and those on lower incomes.
Louise Haigh remarked: “Car insurance is an essential, not a luxury. It is vital to accessing economic opportunities and this government is committed to getting costs under control. That’s why we’re taking direct action to bring insurance companies and regulators round the table to discuss how we can crack down on spiralling costs.
“The rising cost of cover affects all drivers but some groups have been hit harder than others. No matter your background or circumstance, this government is determined to ensure drivers get a fair deal. Our new expert taskforce is a major step forward in delivering a fair deal for drivers. It will give this issue the attention it deserves – rooting out the factors driving up costs for industry and ensuring drivers are able to hit the road.”
Which? has endorsed the creation of the taskforce but insists that regulatory bodies should immediately intervene to safeguard consumers. Last month, the consumer watchdog released findings showing that individuals opting to pay their motor and home insurance premiums monthly are subjected to exorbitant interest rates.
The report highlighted that while most of these rates are around 20 percent, some exceed twice that amount. One broker’s quote included an additional charge of £161 for a motor policy paid over twelve months, calculated with an APR of 45.1 percent.
Anabel Hoult, Chief Executive of Which?, has voiced her concerns about the current state of car insurance costs. She said: “With the cost of insuring a car at eye-watering levels, it’s no surprise many motorists dread the time for renewal.”
She highlighted the issues found in their research, stating: “Which? research has highlighted serious problems with the motor insurance market, from unjustifiably high levels of interest for customers who pay for cover monthly rather than annually, to widespread evidence of significant harm caused by insurers’ claims handling process. I welcome the government setting up this task force to ensure that these issues are addressed.”
Hoult also called for immediate action from the Financial Conduct Authority, saying: “However, there is nothing to stop the Financial Conduct Authority from acting now to show it is on the side of consumers. We want to see the regulator getting tough with insurers that charge excessive monthly rates or fall short of their responsibilities under the Consumer Duty.”