The UK financial services regulator says its focus on premium funding has helped drive lower prices and fees for consumers, and it will continue with engagement and intervention.

The Financial Conduct Authority – which began a market study in 2024 – notes that since the end of 2022 more than half the companies in its sample have improved customer outcomes and people who pay monthly are saving about £157 million ($309 million) a year.

Premium finance interest rates have fallen by an average of 4.1 percentage points, saving consumers £8 ($16) a year on a typical motor policy and £3 ($6) on a home policy, with changes resulting from regulatory attention, fair value assessments and base rate reductions.   

Reductions of 7 points were seen among companies the FCA directly challenged.

“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,” interim insurance director Graeme Reynolds said.

“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.”

The Consumer Duty, which took effect in 2023, requires companies to undertake fair value assessments to demonstrate the price a consumer pays is reasonable compared with overall benefits they can expect to receive.  

FCA launched the market study amid concerns customers using premium finance to pay monthly were not getting fair value and competition was not functioning effectively.  

It has confirmed it will not introduce a price cap or mandate that premium finance is provided without interest, because that could restrict access.

Premium finance was used for 48% of UK motor and home policies in 2023.