Insurers ‘taxing the poor’
CASH-STRAPPED homeowners and motorists paying insurance premiums monthly are charged up to £300 a year more than those able to pay in full upfront, new research shows.
Motor insurers slap on interest charges of up to 40 per cent a year for monthly payers, while home insurers charge up to 35 per cent more, says consumer champion Which?.
This penalises those who cannot afford to pay for their cover in a oneoff lump sum, it said, in what has been dubbed a “tax on being poor”.
Insurers are required to provide fair value on products, and Which? has called on City regulator Financial Conduct Authority (FCA) to “get a grip” on high chargers.
It asked 39 car insurers and 34 home insurers what annual percentage rates (APRs) they applied to monthly payments.
Motor insurer 1st Central charged between 5 and 39.11 per cent a year, Co-op Insurance charged between 31.31 and 34.75 per cent, while Hastings Direct, InsurePink and People’s Choice charged a flat 29.90 per cent. Big names including Churchill, Direct Line, Privilege, Santander, Halifax, Lloyds, Admiral, Tesco, Diamond and Elephant also charged customers high APRs.
The average rate across 27 providers was 23.37 per cent.
Which? found just two insurers – NFU Mutual and Hiscox – do not charge interest on monthly repayments.
This further drives up the cost of motoring at a time when insurance premiums are rapidly accelerating.
Which? said monthly payers were charged £892 a year on average in the year to September 2023, while annual payers paid £583 – a difference of £309, up from £207 five years earlier.
Younger drivers are hardest hit. Last November, Which? ran quotes for a real 18-year-old driver and found they paid £504 more for paying monthly.
Which? director of policy and advocacy Rocio Concha said motor insurance is compulsory yet those not paying upfront are penalised. “It is time for the FCA to get tough with firms that take advantage of customers who can least afford it,” she said.
Concha added the vast majority of mortgage lenders insist on homeowners having cover yet, again, the poorest are being penalised.
On average, home insurers charge monthly payers 23 per cent more, while Co-op Insurance charges between 31.31 and 34.75 per cent, but said it is “looking to reduce” this.
However, 15 home insurers said they do not charge interest, including Halifax, Hiscox, HSBC, Lloyds Bank, MBNA, M&S, Nationwide, NFU Mutual, Sainsbury’s Bank, Santander, TSB and Yorkshire Building Society.
Motorists and homeowners should consider paying for insurance upfront if they can – or choose an insurer that does not charge extra for monthly payments – while still checking the overall cover and cost is competitive.
Banking specialist Andrew Hagger at MoneyComms.co.uk said: “Alternatively, consider taking out a credit card charging zero interest on purchases for an introductory period and using that to pay your insurance premium and spread the cost. Just remember to pay off the debt by next year.”