Premium Finance: the Market Study, and how we got to where we are

December 20, 2024

Premium financing involves lending funds to cover the cost of an insurance premium. This service is typically provided by third-party finance companies or the insurers themselves. Insurance intermediaries also offer it. The loan arrangement can last typically from ten months to a year, with some premium finance arrangements lasting longer than that for longer-term insurance contracts (so anything up to the lifetime of the policy).

Today, premium financing is widely used. It allows individuals and businesses to manage their cash flow more effectively by spreading the cost of insurance premiums over time.

In announcing its premium finance Market Study in October 2024, the FCA said that over twenty million adults pay their premiums in instalments on one or more insurance policies. This is particularly prevalent in motor and home insurance, as would be expected, as these are the commonest forms of consumer insurance. Around one-third of policyholders with motor insurance pay in instalments, compared to 36-52% for contents and / or buildings insurance.

Premium finance is an important product because, as well as offering flexibility to customers, it allows customers who are unable to afford paying for their insurance in one lump sum to get the insurance they need, by paying in instalments.

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