- Insurers in the spotlight for the size of premium increases for monthly payments
- This means that you won’t receive one large bill, but will pay more for the same coverage in total.
- This hits the poorest the hardest, as this is the group least likely to pay one-off bills.
According to research by consumer organisation Which?, monthly insurance costs could be almost 50 percent higher.
Drivers and homeowners who pay their insurance in monthly installments are faced with sky-high interest rates, with some even having to count on an annual percentage rate of 45 percent.
Which? is urging the Financial Conduct Authority to intervene, calling the practice a ‘tax on poverty’.
Monthly surcharge: Drivers are put in a pinch when paying monthly for car insurance, as this usually means taking out some sort of loan from an insurer, which often comes with higher premiums
You can pay your insurance in two ways: monthly and annually.
Paying monthly means avoiding the financial pain of a single, large bill. This is a particular problem with car insurance, where the average annual premium is £622.
But if you pay monthly, you also pay more for the same insurance, because most insurers charge extra costs for this.
Research by Which? found that the average APR for car and home insurance is 22.33 per cent and 19.83 per cent respectively, but some providers are charging much higher rates, with one company, iG04, charging a staggering 45.1 per cent.
For example, a 40-year-old driver in South London was quoted £996.65 for iGo4’s ‘More’ policy if he paid upfront.
But if you choose to pay monthly, the total comes to £1,158.11. That’s a big difference, which is especially a disadvantage for people who can’t pay all at once.
| Insurer | Average APR | |
|---|---|---|
| 1. | The cooperative insurance | 29.89% |
| 2. | AA Insurance | 26.9% |
| 3. | Hastings Direct | 26.9% |
| 4. | InsurePink | 26.9% |
| 5. | People’s Choice | 26.9% |
| 6. | The Green Insurer | 26.6% |
| 7. | Santa Claus | 26.5% |
| 8. | Churchill, Darwin, Direct Line, Privilege | 23.3%-28.9% |
| 9. | Bank of Scotland | 23.5% |
| 10. | Halifax | 23.5% |
| Source: Which? survey of car insurers | ||
IG04 has not disclosed average APRs to Which?
Other big names, including Swinton, Hastings Direct and the AA, charge APRs between 26.9 and 33.8 percent.
Broker Co-operative Insurance has the highest average APRs for both home and car insurance.
| Column | Insurer | Average APR |
|---|---|---|
| 1 | The cooperative insurance | 29.89% |
| 2. | AA Insurance | 26.9% |
| 3. | Hastings Direct | 26.9% |
| 4. | 1st Central | 25% |
| 5. | Tesco | 23.5% |
| 6. | Churchill, direct line, privilege | 20.5%-23.4% |
| 7. | Admiral | c21% |
| 8. | Age axis | 19.9% |
| 9. | RIAS | 19.9% |
| 10. | Aviva | 15% (average) – 19.9% (maximum) |
| Source: Which? survey of car insurers | ||
Co-op Insurance leads the way when it comes to the highest interest rates, charging 29.89 percent APR for both auto and home insurance.
NFU Mutual and Hiscox are two of the few insurers that do not charge interest on monthly payments, providing some relief in a high-cost market.
Punishing the poor
Which? claims that many customers who pay monthly do so out of necessity, not choice. It also claims that the high interest rates charged by insurers are unfair given the minimal risk involved.
Insurers can cancel policies if payments are missed, but still charge interest rates comparable to credit cards, leaving lenders at much greater risk.
Which? Director of Policy and Advocacy Rocio Concha said: ‘Many customers who pay monthly do so not out of choice, but out of financial necessity. That these same customers end up paying too much compared to those who pay annually is simply unfair.’
Which? wants the FCA to introduce an action plan that would force insurers to disclose their profit margins between monthly and annual payers, with deadlines for reducing annual percentage rates (APRs) and consequences for insurers who fail to comply.
A Co-op Insurance spokesperson said: ‘After reviewing the credit rates of our insurance partner Markerstudy Distribution, we have been able to reduce our rates for both car and home insurance in recent months. We continue to review this on an ongoing basis.
‘As part of our commitment to transparency, we share our credit rates openly with both consumers and consumer groups. We encourage all providers within the sector to follow this approach. As many providers choose not to participate in such surveys, it is impossible to provide an accurate picture of the sector and the policies offered.’
A spokesperson for Markerstudy said: ‘It is important to us that we offer our customers freedom of choice, including the option to pay their insurance monthly.
‘Markerstudy Distribution has a variety of brands and within these we have a range of risk profiles that we service. As we strive for good customer outcomes, we are working to reduce our APRs across a number of our brands as part of our ongoing review process. IG04 (which covers telematics and non-standard motor insurance) is scheduled for review in Q4.’