Which? wants the 'poverty premium' on car cover banned
Which? wants ministers to ban insurers charging extra APR for paying car insurance monthly, after finding rates as high as 53 per cent. It says broker margins on the credit can dwarf the margin on the policy itself.
A single car, the same driver, the same risk, can cost 53 per cent more a year to insure if you choose to pay monthly rather than in one go.
Which? mystery-shopped 36 quotes across 30 motor insurers and brokers and found City Insurance charging a representative APR of 53 per cent to spread payments across the year, more than double the market median of 26.2 per cent. Which? City Insurance has since said it will cut that rate to about 36 per cent.
At Rightsure, a £2,583.23 annual policy became £2,950.98 once spread monthly, an extra £367.75 for the choice to pay in instalments rather than upfront.
Which? wants the Prime Minister to use the coming Budget to ban this two-tier pricing outright, and to guarantee drivers a genuine right to pay monthly without being penalised for it.
Here is the detail worth sitting with. The regulator’s own market study found that broker margins on motor premium finance can run to 57.5 per cent once ordinary running costs are stripped out, according to the FCA. Which? puts the average profit margin on the premium finance itself at 31 per cent, against roughly 3 per cent on the underlying motor policy.
It is the logic of a restaurant that prices the wine at ten times the markup it puts on the meal, and tells a hungry diner the two were never meant to be compared.
Rightsure disputes that comparison. It told Which? its own net profit on premium finance runs to about 0.4 per cent, forty pence for every hundred pounds lent, and said an APR figure alone does not show the value a customer receives.
A rate that looks punitive to a regulator can still look wafer thin to the firm charging it, and only one of those two numbers has been independently tested.