Insurers fail to give clear information on payment options

The Financial Conduct Authority (FCA) says firms don't always provide customers with clear information when it comes to choosing whether to pay for insurance upfront or via instalments.

It adds that this in turn makes it hard for people to compare costs, with some not realising there is a price difference between the payment methods. See MoneySavingExpert.com's Insurance guides to compare quotes and deals for car and home insurance.

In addition, the FCA found that where firms offer payment via monthly instalments, in a number of cases a representative example was not provided, or the example did not include all of the required information. It says this could potentially limit a buyer's ability to make an informed choice about how to pay.

When a firm provides pre-arranged credit or finance where costs are spread over 12 months, or is acting as a credit broker, it is required to provide a representative example setting out the interest rate, fees and charges, the representative annual percentage rate (APR), and the total amount payable.

The FCA's findings follow a review of the 'customer journey', up to the point where they were required to input payment details, at 13 home and car insurers and 30 insurance intermediaries, including four comparison sites.

The FCA says it expects all firms involved to consider the findings of the review and take action where necessary. It is also following up with individual firms where it found specific examples of failings and poor practice. Because of this it won't tell us which firms' practices it reviewed.

Consumers are struggling to compare the cost of insuring their homes and cars, the FCA has revealed.

'Paying monthly means you're effectively choosing a high-interest loan'

Rebecca Rutt, senior insurance writer at MoneySavingExpert.com, says: "Paying monthly for car or home insurance means you're effectively choosing a high-interest loan, because along with paying for the insurance, you're also paying for the interest added on by the insurer.

"Therefore, if you can, always pay it in full to avoid this. If you can't afford such a big lump sum in one go, a credit card that charges 0% for a minimum of 12 months will cut your costs. Just make sure you make the minimum repayments each month or you could lose the 0% deal, and clear the debt within the 0% period.

"And remember – some insurers perform hard credit searches if you opt to pay for the insurance in monthly instalments (rather than upfront in one go). Therefore, it's always worth checking first if you're not happy with this happening – the insurer will tell you before a hard search is carried out."

'It's important people see exactly what they're signing up for'

Further to the key findings outlined above, the FCA's review also found the following:

• A wide range of APRs were used, which highlights the importance of customers having appropriate information to be able to compare prices and understand the impact that the cost of finance has on the overall price of the insurance product.

• A proposed credit agreement was not always adequate or provided early in the buying process to enable customers to make informed decisions.

• Firms acting as credit brokers did not always disclose the name of the credit provider or details of its relationship with the firm.

• In some cases it was not made clear that a fee for arranging finance would be charged.

Linda Woodall, acting director of supervision at the FCA, says: "Consumers should expect clear information about the payment options available to them.

"Regardless of whether people choose to pay upfront or in instalments, it's important that they can see exactly what they are signing up for and how much it costs so they can decide whether they are getting a fair deal."