FCA Final Report on premium finance: clean bill of health?

On 3 February 2026, the Financial Conduct Authority (‘FCA’) published its final report in its market study on the provision of premium finance for motor and home insurance – i.e. insurance products paid for monthly rather than as an annual lump sum. The report confirms that there will not be any sector-wide interventions at this stage. Overall the FCA found that the cost of premium finance has fallen since 2022. But it also highlights the need for robust fair value assessment by firms. The FCA will maintain a continued focus on this through the Consumer Duty introduced in 2023, taking stronger supervisory action to address fair value concerns where needed.  The FCA will also continue to monitor prices and use its supervisory and other regulatory tools to address any further competition issues and/or poor practices it identifies. This is a perfect example of the FCA using its wider toolkit to address competition issues leading to poor consumer outcomes.

Background

The FCA launched a market study into premium finance for home and motor insurance in 2024. This was based on concerns that such premium finance products were not priced fairly relative to their associated credit risk and that competition may not be functioning effectively.

Premium finance is a loan typically sold by the insurer or an intermediary which allows customers to pay their insurance in (usually monthly) instalments instead of a lump sum. Millions of insurance policy holders rely on premium finance in order to afford motor and home insurance, if they are not able to afford a year’s premium all at once. Given the importance of this product for consumer access to essential insurance, the FCA initiated the market study in October 2024.

When publishing its initial findings in July 2025, the FCA provisionally found that a single market-wide intervention, either in the form of a cap on APRs, mandated 0% APR or ban on commission, was not a proportionate response. The FCA would examine higher priced products, commission and clawback arrangements and customers’ ability to compare more closely before concluding on possible remedies.

Key findings of the Final Report

The report has now confirmed that there will not be any sector-wide interventions at this point but highlighted the need for robust fair value assessment by firms and the FCA’s supervisory role in ensuring this.

The FCA highlighted the instrumental role of premium finance, noting that it was used in 48% of motor and home policies in 2023. The regulator acknowledged the improvements which had occurred in the market as a result its scrutiny under the Consumer Duty regime, with insurance premium finance APRs falling on average by 4.1% since 2022. It also identified that firms had put in place internal policies to improve fair value assessments.

In spite of these improvements, the FCA noted that some customers were still paying higher prices. However, rather than introducing sector-wide interventions, the FCA would instead focus on continuing to monitor prices and individual firms' fair value assessments, acting against individual firms where necessary. 

 Other key findings in the report include:

• There was no evidence that credit risk was being double counted, by being priced into both the insurance premium and the interest charges. This was positive, although the FCA reminded firms that increasing insurance premiums based on premium finance risk was not considered to be providing fair value.
• Price comparison websites provide transparency, by ranking insurance quotes with premium finance included in the overall cost of insurance, which enables customers to assess the total cost across the year.
• There was no need for a 0% APR mandate, as some providers offer 0% APRs already and with-interest policies do not prevent the securing of good customer outcomes. It also found that a 0% APR mandate could be detrimental to the market, by restricting market access to customers requiring flexibility and it would likely increase premiums across all policyholders.
• There were higher than average broker interest rates, around 3% compared to insurers and intermediary lenders. However, the FCA did not find evidence of “egregious commissions and high margins” among brokers. While the FCA found no evidence of harm in brokers negotiating premium finance exclusivity arrangements, it flagged that firms should ensure such arrangements are in line with Consumer Duty fair value requirements.
• Market standard broker remuneration arrangements were not ‘Discretionary Commission Arrangements’, provided any broker discretion over gross interest rates/commissions was solely at an overarching product level, rather than in respect of individual customers. This distinguishes the arrangements in the FCA’s eyes from historic motor finance commission structures, and therefore the FCA did not consider a similar level of intervention over these arrangements was needed as has been seen in the motor finance industry.

Conclusions

While the FCA is not making any rule changes or introducing market-wide interventions at this stage, its message is clear. Implementation of the Consumer Duty requirements, and targeted action where necessary, will continue to be its key focus to address perceived issues with premium finance for home and motor insurance products. It has also promised to continue monitoring prices.

The market study has therefore concluded with a relatively clean bill of health regarding potential competition issues in that sector. But the FCA is keeping these products firmly on its radar and will decide which is the most appropriate tool to address any issues identified going forward. The credit industry, and regulation of it, is a key regulatory focus in the year ahead – as part of contributing to the discussions on the wide-scale reform of the Consumer Credit Act 1974, regulators will be actively reviewing how participants and products are impacting customers and what outcomes various sectors are delivering for customers. All market participants active in the premium finance sector should therefore to continue monitoring fair value and competition issues.

This is a good illustration of the FCA using its wider regulatory toolkit to address underlying product governance and competition issues. The FCA is here preferring use of its regulatory powers for an effective and targeted approach to strategically significant issues in the premium finance sector. Our analysis of UK competition enforcement found this to be a trend with several sector regulators, the FCA being particularly prominent among these. Further details of our analysis is available here.

For more information, or any questions you may have on this report, please reach out to Jacqueline Vallat, Graeme Young for competition matters or James Dickie or Sarah Brook for regulatory matters , or your usual CMS contact.