Some home insurers are still charging APRs on monthly premium payments that rival expensive credit card interest rates, despite repeated warnings that this practice may be excessive, according to new research by Which?.
The consumer champion surveyed 46 home insurers about the interest rates they charge customers who opt to pay monthly. While half of the providers surveyed confirmed they do not charge interest, the other half apply rates that, in some cases, exceed 30%. The average APR across all home insurers was 21.59%, with some firms charging significantly higher.
The highest home insurance APRs were found at One Insurance Solution, which charged between 30.72% and 34.08%—figures comparable to some credit card lenders. For context, as of late February, the average credit card purchase APR stood at 35.42%, but the majority of cards (55.3%) had rates below 25%.
Which? believes these charges are difficult to justify, as insurers face far less risk than credit card lenders. If a customer fails to pay, the insurer can simply cancel the policy. The FCA has previously said it is concerned with “‘charges potentially being too high relative to the credit risk and cost of providing the service.’”
Encouragingly, some home insurers have reduced or removed their charges in response to public scrutiny. Ecclesiastical, which previously charged between 8.26% and 13.44% APR, stopped charging interest altogether in March—the biggest decrease recorded in the survey. The insurer told Which? that by removing interest charges, it was “‘helping to make our household premiums more affordable for those customers who need to spread the cost.’”
Which? remains concerned that too many insurers continue to impose high rates on those who can least afford them. The FCA, which has previously called premium finance a “‘tax on being poor,’” is currently conducting a market study into this practice, with findings expected in the summer.
Rocio Concha, Which? director of policy and advocacy, said: “‘People often don’t pay for car and home insurance in monthly instalments out of choice, but financial necessity. For millions to be hit with excessive extra charges due to their circumstances seems like kicking customers when they are down – and this is exactly the kind of unfairness the regulator should have in its sights.
‘Encouragingly, the FCA is now looking into this issue. As part of its market study, the regulator must get to the bottom of what fair rates of interest are by gathering information from firms on profit margins and commission levels – and ultimately be prepared to take tough action against firms continuing to charge excessively high rates of interest on monthly repayments.’”
