Premium Finance, Fair Value & Consumer Duty: A Risk Hiding in Plain Sight?

The FCA’s recent warning to general insurers and brokers about premium finance practices is more than a regulatory reminder. It is a clear signal. At the heart of the regulator’s concern is the practice of charging customers significantly more when they choose to pay their annual insurance premium in monthly instalments.

While this approach has been common across the industry, the combination of inflated premiums and high APR charges, often between 20 and 30 percent, is now being described as “double dipping.”

Under the Consumer Duty, this presents a growing challenge. The regulator expects firms to demonstrate fair value and ensure pricing structures do not lead to poor outcomes, particularly for vulnerable customers.

What Is Premium Finance and Why Is It Under Scrutiny?

Premium finance allows customers to spread the cost of their annual insurance premium across monthly payments. This is usually arranged through a credit agreement with either the insurer or a third-party finance provider. The customer pays interest on the loan and, in many cases, also pays a higher base premium simply for choosing to pay monthly.

The FCA has made its position clear: - “Firms must ensure any additional costs to customers who pay in instalments are objectively justifiable and represent fair value.”

This is not about banning premium finance or setting blanket APR caps. But where firms cannot clearly explain the rationale behind the pricing structure, especially when it impacts vulnerable customers, they risk coming under increased regulatory scrutiny.

Pricing Is Only Part of the Picture

The FCA has also raised concerns about complaint handling across the home, motor and travel insurance markets. Issues such as slow response times, weak oversight and poor record keeping have all been highlighted.

In a market where almost half of all customers now pay for their insurance in monthly instalments, this combination of pricing concerns and inconsistent complaints handling could pose a significant compliance risk. This is less about industry-wide redress and more about targeted action and reputational damage.

What Should Firms Be Thinking About?

This is not just about interest rates or whether the monthly premium uplift is too high. The broader issue is whether the design of the finance offer supports good customer outcomes. Are the costs transparent and fair? Do different customer groups experience the product in different ways? Are complaints being managed in a way that reflects the expectations of the Duty?

From our experience, once concerns like this gain attention, a familiar pattern tends to follow:

1. Increased Subject Access Requests and customer complaints

2. Media and consumer group pressure

3. Targeted regulatory reviews of product design and value

   
   

Although recent media coverage, such as that in The Sun, may seem sensational, it reflects wider public sentiment and the reputational risks insurers could face if these issues are not addressed.

How Profexx Can Help

We are working with firms now to get ahead of these risks. Our team brings deep expertise in remediation, regulatory compliance and customer outcomes. We are helping clients to:

• Review premium finance structures to assess and evidence fair value

• Stress test pricing models against Consumer Duty requirements

• Strengthen complaint handling frameworks and governance

• Develop practical responses to mitigate regulatory and reputational risk

  
  

We support general insurers, MGAs, brokers and premium finance providers and understand the real-world challenges of aligning commercial decisions with regulatory expectations.

Time to Act

If your organisation offers premium finance or is seeing an increase in complaints or SARs, now is the time to assess your approach.

This is not about assuming the worst. It is about getting ahead of the risks and building confidence in your compliance position.

Let’s talk. We can help you review your current model and prepare a response that reflects the expectations of both regulators and your customers.

Visit us at www.profexxpartners.co.uk Email admin@profexxpartners.co.uk