A new investigation by the consumer group reveals some providers are charging APRs as high as 45%, with an average of over 20% across both car and home insurance.

These rates are comparable to credit card borrowing costs, even though insurers face minimal risk as they can cancel policies if payments are missed. Which? argues this practice unfairly penalises those who can’t afford to pay annually upfront.

The worst offender was iGO4, charging an APR of 45.10% for car insurance. This translates to customers paying up to an extra £161 per year compared to annual payers. Co-op Insurance had the highest rates among those disclosing APRs, while several others charged over 25%.

However, some insurers, including a number of banks, building societies, and mutuals, don’t charge any interest for monthly payments. Which? believes the FCA needs to urgently address this issue, which it has previously acknowledged as a “tax on being poor”.

The consumer champion wants the FCA to publish an action plan with clear deadlines for reducing APRs.

As part of this action plan, the FCA should collect data on the cost to firms of providing premium finance and the difference in their profit margins between customers paying monthly and those paying annually. 

It should then make clear where insurance companies’ pricing practices are failing to meet fair value requirements and take enforcement action against any firms that do not sufficiently address failings.

Rocio Concha, Which? director of policy and advocacy, said: “Many customers who pay for home or car insurance monthly don’t do so out of choice, but financial necessity. That these same customers can end up paying over the odds compared to those who pay for cover annually is blatantly unfair. 

“This is not the first time Which? has sounded the alarm over eye-watering levels of interest, yet excessively high rates persist. 

“Car and home insurance policies aren’t nice-to-haves, but essential for motorists and homeowners. It’s high time for the FCA to take meaningful action against firms that continue to charge high rates and end this injustice.”

On behalf of car insurance provider iGO4, a spokesperson for insurance broker Markerstudy Distribution said: “Offering choice to our customers is important to us and that includes providing the option to pay monthly for their insurance. Markerstudy Distribution has a variety of brands and within these we have a range of risk profiles that we cater for.

“As we strive to deliver good customer outcomes, we are working to reduce our APRs across a number of our brands as part of our ongoing review process. iGO4 (which caters for telematics and non-standard motor insurance) is scheduled for review in Q4.”