Falling Cost of Premium Finance Saving Consumers Around £157m a Year
•February 10, 2026
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Companies Mentioned
Why It Matters
Lower financing costs increase affordability for the 23 million UK households paying insurance monthly, enhancing consumer welfare. The regulator’s approach demonstrates how targeted oversight can drive market competition without imposing restrictive caps.
Key Takeaways
- •Premium finance rates fell 4.1 percentage points since 2022.
- •Consumers save £157 million annually from lower finance costs.
- •High‑risk firms cut APRs by 7 points, saving more.
- •FCA used Consumer Duty, not new rules, to drive changes.
- •Monthly‑pay insurance covers 23 million UK policies.
Pulse Analysis
The premium‑finance model lets policy‑holders spread insurance premiums over monthly instalments, a service relied upon by roughly half of UK motor and home policies. While convenient, the model traditionally adds interest, raising the effective cost of cover. Since the FCA’s Consumer Duty took effect in 2023, insurers have been required to demonstrate fair value, prompting a market‑wide review of finance rates. This regulatory pressure coincided with broader base‑rate reductions, creating an environment where firms could lower APRs without sacrificing profitability.
The FCA’s latest market study shows average finance rates fell 4.1 percentage points since 2022, translating into £8 savings on a typical motor policy and £3 on a typical home policy. Firms identified as high‑risk cut APRs by about seven points, delivering £14 and £4 additional savings respectively. In total, these adjustments generate roughly £157 million of annual consumer benefit, underscoring how competition can be nudged toward fairer pricing through oversight rather than prescriptive caps. The regulator’s approach also signals to the industry that fair‑value assessments are now a core compliance pillar.
Looking ahead, the FCA has warned that it will intervene if firms slip below fair‑value expectations, but it stops short of imposing a price cap on premium finance. This balanced stance preserves access to monthly payment options for the 23 million customers who cannot afford lump‑sum premiums, while maintaining pressure for continued price discipline. Insurers will likely refine their product‑design and risk‑pricing models to align with the Consumer Duty, and other regulators may adopt similar oversight frameworks to curb hidden cost inflation across financial services.
Falling cost of premium finance saving consumers around £157m a year
People who pay monthly for their insurance are saving around £157m a year, with over half the firms the FCA reviewed as part of a market study lowering the cost of premium finance. Interest rates for premium finance have fallen by an average 4.1 percentage points since 2022, saving consumers £8 on a typical motor policy and £3 on a typical home policy per year. The changes result from regulatory attention, fair value assessments and base rate reductions. The FCA has seen even more significant changes made by firms it identified as at highest risk of not providing fair value, following direct engagement with them. These firms reduced APRs by 7 percentage points on average – saving £14 on a typical motor policy and £4 on a typical home policy per year.Graeme Reynolds, director of competition and interim director of insurance at the FCA, commented:'For millions, paying for insurance monthly is not a choice: it’s a necessity. We found that competition in the market is meeting the needs of many consumers. But where we found issues, we used our Consumer Duty to get people fairer value, without needing to write new rules.'While we’re not planning any market-wide changes, we won't hesitate to act if firms fall short of our expectations as we continue to monitor fair value.'In 2023, nearly half of motor and home insurance policies (about 23 million) were paid monthly, often because customers couldn’t afford annual payments.The FCA has confirmed it will not introduce a price cap or mandate that premium finance is provided without interest, as this could restrict access to important cover for customers who can only afford to pay monthly.The regulator expects all firms to consider whether further changes are needed to their premium finance offerings to meet fair value requirements. To help them, it has shared examples of good and poor practice seen across the premium finance market.Notes to editors Read our final report and interim report. The estimated savings for individual motor and home insurance customers quoted above, £8 and £3 respectively, refer to reductions in the average cost of premium finance from £49 to £41 (2022 vs 2026) for motor and £18 to £15 for home (2022 vs 2026). Savings are calculated using representative motor and home premiums of £400 and £220 respectively.Since the Consumer Duty came into force in 2023, firms have been required to undertake fair value assessments to demonstrate if the price a consumer pays for a product or service is reasonable compared to the overall benefits they can expect to receive. We have previously provided good and poor practice on fair value assessments with further examples in the full report. Read our blog on fair value.
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