The Association of British Insurers (ABI) has announced a range of new principles to manage consumer costs around premium finance.
The Premium Finance Principles underline what fair practice should look like and revolve around five elements: transparency, affordability, fair value, proportionality and accountability.
The ABI addressed rising motor insurance prices by announcing a number of steps in February, with premium finance a key element of that.
It has now committed to five key principles:
Transparency: When setting out any cost for paying by monthly instalments, insurers should provide a clear comparison of the total cost of paying annually and the total cost of paying monthly. Insurers should also publish up-to-date, clear information about their common or average premium finance charges.
Affordability: When deciding on their premium finance offering to customers, insurers should have regard to the fact that many consumers cannot afford to pay for their insurance up front, in one lump sum and so charges for paying by monthly instalments can fall hardest on those who can least afford it.
Fair value: Insurers must ensure that costs associated with monthly instalments represent fair value. As part of this, insurers should consider how any income from premium finance compares to their income on the core premium.
Proportionality: Insurers should ensure that charges are reasonable, relative to the costs of providing premium finance for monthly payments. Insurers should also consider charges relative to comparable and accessible alternative payment options, such as a credit card.
Governance and Accountability: Insurers must regularly review the cost to customers of premium finance, using suitable information or data to ensure any charges remain appropriate. They should ensure the right level of senior management accountability for their approach taken on premium finance charges and its impact on consumers.
Mervyn Skeet, Director, Head of General Insurance policy said, “The principles announced are one of a raft of actions we are taking to tackle the cost of motor insurance, which we know is putting pressure on households, especially those on lower incomes. We are doing all that we can within our reach as a trade body for insurers and hope that other organisations involved with premium finance follow our lead.
“We’re also looking to investigate policy steps that could help low-income households specifically, as well as deliver on our broader Roadmap to tackling costs. This includes a call on the government to reduce insurance premium tax (IPT), especially when they are bringing in record tax revenues as a result of higher prices.”
The impact of these principles will be published in an ABI report next summer.
