FCA Ends Its Premium Finance Study Without New Rules: Monthly Insurance Payments Cost Less Than in 2022, but Scrutiny Continues

The Financial Conduct Authority has closed its market study into insurance premium finance without introducing new rules, concluding that the cost of paying for motor and home insurance monthly has fallen and that the evidence does not justify a price cap. The regulator published its final report on February 3, 2026, according to a legal update from the law firm CMS. This article summarises that update, which does not reproduce the report itself or give absolute interest rates, so readers who need exact figures should consult the FCA's published study.

Premium finance is the arrangement under which a customer pays for insurance in monthly instalments instead of a single annual payment. In practice, the insurer or broker arranges a credit agreement, and the customer pays interest on top of the premium. CMS reports that premium finance was used in 48% of motor and home policies in 2023. That makes it one of the most common forms of consumer credit in the country, and the reason the regulator took an interest. The FCA started the market study in October 2024, according to CMS, and published its initial findings in July 2025 before the final report in February 2026.

What did the FCA find? According to CMS, average annual percentage rates on insurance premium finance fell by 4.1% on average since 2022. The summary does not say whether that is a relative fall or a fall in percentage points, and it gives no absolute APR levels. It also reports that broker interest rates were around 3%, higher than those of insurers and intermediary lenders, which suggests that where a customer arranges finance can affect the price. The regulator found no evidence that credit risk was being double counted, meaning that customers were being charged for the risk of non-payment both in the insurance premium and again in the interest. It found that price comparison websites provide transparency by showing premium finance within the total cost of insurance. It found some brokers' exclusivity arrangements did not cause harm, though firms should ensure they meet fair value requirements under the Consumer Duty. It found no evidence of egregious commissions or high margins among brokers. It also decided that standard broker remuneration did not amount to the discretionary commission arrangements that caused concern in motor finance, so an intervention modelled on that case was not considered necessary.

Equally important is what the FCA decided not to do. It imposed no sector-wide intervention and made no rule changes. In July 2025 it had provisionally considered several options, including a cap on APRs, a mandated 0% APR and a ban on commission. In the final report it did not adopt any of them, finding that a single market-wide intervention was not proportionate. On the idea of requiring 0% finance, CMS reports the FCA said this could restrict access for customers who need the flexibility of monthly payment and could increase premiums for all policyholders. The reasoning is that if insurers could not earn anything on finance, the cost might be spread into higher annual prices that everyone pays, including customers who pay in full.

The regulator did not walk away. According to CMS, it will continue to focus on fair value through the Consumer Duty, which came into force in 2023, with stronger supervisory action against individual firms where needed. It will continue to monitor prices and use its wider regulatory tools to address competition problems or poor practices. The legal update links these steps to wider discussion of reforming the Consumer Credit Act 1974. In other words, the issue is closed as a market study but remains on the supervisory agenda.

The reaction has not been uniform. The law firm's headline describes the outcome as a clean bill of health, reflecting a view that the market is working well enough. The consumer group Which? published an article whose headline, as shown in search results, criticises the FCA for failing to act on premium finance, though this review has not read it in full. That contrast reflects a real debate about whether a market that has become cheaper but still charges interest on a necessary product is fair.

What should customers do? First, compare the total cost of paying monthly against paying annually. Every quote should show the annual premium and the total amount payable in instalments, and the difference is the cost of credit. Second, check the APR, not just the monthly amount, because a low monthly payment can hide a high interest rate. Third, consider where you arrange finance. If paying annually is possible, even by using a credit card with a lower rate or a savings pot, it may cost less, though credit card use brings its own risks. Fourth, look at what happens if you cancel mid-year, because outstanding instalments and fees can apply. Fifth, use comparison sites that show premium finance in the total cost, which the FCA found improves transparency.

For insurers and brokers, the message is that the Consumer Duty is the main tool. Firms need to be able to show that the price customers pay for finance is fair value, particularly where they receive commission or have exclusive arrangements. The regulator has said it will act against individual firms, and the decision not to cap prices does not protect those with outlying rates.

The next stage depends on the data the FCA gathers. If average prices rise again or particular firms stand out, it could return to the options it set aside. For now, the decision leaves customers with a market that is cheaper than in 2022 on average, with no price cap, and with the responsibility to compare.