In Focus: How could the motor market evolve following legal and regulatory scrutiny?

WE ASKED: How could the motor market change or evolve considering the Supreme Court’s motor finance case and the FCA’s continued focus on premium finance?

Matthew Maxwell Scott, executive director, The Association of Consumer Support Organisations

Motor and premium finance are separate but linked issues – and not just for providers.

At its broadest level, 80% of the public buy a new car on finance. That means four in five motorists are due compensation, pending the Supreme Court judgment – the UK’s highest court is due to hear appeals in early April 2025.

We will have to wait for what the multibillion pound redress scheme looks like, but retailers and brokers must give advice and recommendations on a disinterested basis right now.

They have a fiduciary duty to their customers when providing car finance. Similar levels of transparency apply to insurance premium finance arrangements.

As part of its review, which launched in October 2024, the FCA will be checking to make sure commissions are clearly advised and explained. This is where the sector got it very wrong before.

The FCA should also make sure insurers are not loading premiums for customers who choose to pay monthly, especially in light of government concerns about the affordability of car insurance for people from disadvantaged backgrounds who already suffer from the premium postcode lottery.

Although the Labour government has told regulators to have growth in their remit, the motor finance debacle has underscored a self-evident truth – that the financial services industry’s duty to consumers and its concern for doing the right thing by the public is patchy at best.

The FCA cannot row back on regulation if the insurance industry breaks the rules again and again.

Moreover, motor insurance is a compulsory purchase, so cannot be left to the mercy of the market. Caveat emptor can’t work in motor.

Tim Hogg, director, Fairer Finance

We welcome the debate around whether the competitive dynamics of the car insurance market are functioning in the best interests of consumers.

The poverty premium has rightly been high up the policy agenda.

As car insurance premiums have risen across the board, it has been those who pay monthly that have borne the greatest impact.

Through the market study into premium finance, the FCA should consider a full range of remedies – from mandating light touch disclosures to a ban on charging consumers more for paying monthly.

Several insurance markets do not currently charge more for the ability to pay monthly.

It is not clear if banning the practice of charging more for paying monthly would be in the best interests of car insurance customers, so it’s important for the FCA to weigh up the costs versus the benefits for different groups of customers.

The FCA expects to publish an interim report on this subject in the first half of 2025.

The Supreme Court’s motor finance case, meanwhile, could result in changes to how commission is disclosed to consumers.

While it is unclear if greater transparency of motor finance commission will radically change consumer behaviour – we welcome any changes that will help consumers make more informed decisions.

Sara Ager, chief executive, GreenKite 

Regardless of the Supreme Court’s decision in April, changes are likely in the motor and broader insurance markets – particularly given the ongoing FCA investigation into premium finance.

Greater transparency around what fair looks like is likely to continue to be a key theme and focus for the FCA.

Consumers face challenges due to a lack of transparency around commissions and, in some market segments, this remains a real issue.

Motor and premium finance type products, which lend themselves to monthly instalment payments, have typically attracted higher commissions because of how the product is accessed.

Disclosure has not been mandated across all markets and where it is required, this often lacks sufficient clarity. This has led to consumer mistrust and potential misunderstandings as to what the product costs and the value it brings.

The introduction of new transparency requirements would enhance price competition because customers would be better informed and start to vote with their feet.

At GreenKite, we think it is unlikely that the FCA will interfere with market forces by imposing direct caps on commissions, preferring instead to leverage its regulatory regime and Consumer Duty rules to drive improvement.

Increased attention, focus and the FCA’s thematic review around product, fair value and transparency will ultimately result in better consumer outcomes.