Premium finance in focus: what the FCA’s market study means for insurers

With more consumers than ever opting to pay for insurance in monthly instalments rather than upfront, providers in the premium finance space are facing intense scrutiny.

Are their customers getting fair value? Is competition functioning properly? Or do regulators need to intervene? This is what the Financial Conduct Authority (FCA) is seeking to determine through its Premium Finance Market Study (MS24/2), launched in 2024.

With the report due for release in early 2026, here we review the key initial findings in tandem with Experian’s own insights and ask how insurers and other premium finance providers can act on them to turn regulatory expectations into a source of competitive advantage.

The ongoing shift to monthly payments

Premium finance is chosen for around half of home and motor policies in the UK today, according to the FCA’s latest figures (2023). This tallies with Experian data showing that the total number of policies funded by premium finance increased by around 19% between 2021 and 2025.

A key driver of the increased uptake is the sharp rise in premiums themselves due to factors such as increased repair and replacement part costs, supply chain issues and the complex technology in modern cars, which means claims are more significant. As a result the value of an average policy funded through premium finance grew by 26% between 2021 and 2025, peaking at 38% in early 2024, Experian data shows.

Meanwhile, the cost of living and borrowing remains elevated, which means many customers can’t afford a large lump sum and increasingly need to spread the cost of insurance payments. Paying monthly has also become the norm for households more generally, increasingly used for everything from TV streaming to utilities.

Old and young bearing the brunt

Rises in premium finance costs have not been felt uniformly across the generations. For customers under 25, Experian data shows the average opening balance for monthly-paid policies shot up by more than £400 between 2021 and 2025, with average monthly payments now exceeding £135, having peaked at over £150 in 2024.

Customers in the 36–50 age group have been less impacted with an average opening balance increase of around £178 during the same period – a 31% increase. Usage of premium finance by those over 60 spiked by 30% during this time frame while the overall value of these policies have more than doubled.

Excessive annual percentage rates?

Most premium finance consumers pay headline annual percentage rates (APR) of 20–30%, the FCA found, while one in five pays more than 30%. Can insurers justify these levels of APR?

In other sectors of consumer credit, interest rates typically reflect a customer’s level of credit risk, accounting for adverse credit markers such as historic defaults, county court judgments (CCJs) or past delinquencies on previous credit agreements.

Yet Experian data suggests the credit risk profiles of premium finance customers have broadly remained stable in recent years. In addition, the FCA found bad debt and default (cancellation) rates among premium finance customers are relatively low and broadly aligned to other credit products.

As missed monthly instalments typically lead to policy cancellation – resulting in lost income and additional operational costs for the insurer – providers should consider this when setting the APR for premium finance offerings.

Variation in rates and charges

The FCA’s analysis found significant variation in APRs and finance charges across providers.

To better understand their position in the market and ensure competitive offerings, insurers can use credit reference data as a benchmarking tool. This data can illuminate differences in key metrics such as the opening balance of finance taken, and average monthly payments across customer cohorts defined by age, risk profile and geography. Such intelligence helps firms compare their performance against peers and demonstrate that they are pricing and assessing risk fairly and effectively.

Affordability challenges

In 2024, 60% of motor policyholders and 41% of home policyholders who paid by instalments did so because they could not afford to pay in a single annual payment, the FCA study reports.

How far should insurers go beyond traditional creditworthiness checks to truly understand a customer’s ability to sustain monthly payments? FCA guidance^[1]states these checks should be proportionate to the product’s risk and complexity while avoiding foreseeable harm. However, if a customer cannot afford monthly instalments, they almost certainly cannot pay the full premium upfront. Declining finance seems the logical response, but under Consumer Duty, the firm must ensure the overall outcome is still fair and not foreseeably harmful.

Alongside lower-cost products, providers should consider innovative models, flexible payment structures or alternative solutions based on their risk appetite and understanding of the individual customer. Accurate and timely credit reference data is crucial here to understand the risk the customer poses both from an insurance and financial perspective, to validate their repayment capacity, price effectively, and ensure decisions align with regulatory expectations.

Transparency barriers

Firms are generally performing well at helping consumers understand the cost difference between paying monthly versus annually, the FCA found. However, consumers may struggle to compare premium finance with other alternative credit products such as credit cards because of confusing terminology, said the regulator.

The FCA also raised concerns about the practice of ‘double dipping’ where some monthly-paying consumers may face higher charges for the underlying insurance premium in addition to finance charges. Firms must have an objective and reasonable basis for any increase in the insurance premium for customers using premium finance, it emphasised.

From findings to firm action

The ongoing FCA’s Premium Finance Study presents an opportunity for insurers to reassess how they deliver fair value, transparency and affordability.

As premium finance usage continues to rise amid escalating insurance costs and household budget pressures, providers must ensure their solutions are accessible and responsibly structured to avoid foreseeable harm. This includes addressing affordability beyond compliance, justifying APRs, and mitigating cancellation risks.

Demographic shifts and growing reliance on monthly payments demand flexible, innovative models that support good outcomes for all customers, particularly the most financially vulnerable.

Greater use of credit data and market benchmarking is empowering firms to price more effectively, track shifts in the market and remain competitive while aligning with regulatory expectations. Firms that act proactively will be better positioned not only to meet Consumer Duty expectations but to strengthen consumer trust and long-term market leadership in a competitive market.