LONDON (Reuters) - The Association of British Insurers (ABI) told its members on Thursday to keep monthly charges for motor insurance "reasonable" following complaints about a sharp rise in premiums.
Consumer advice publication Which? last week said some people who can only afford car insurance through monthly instalments are being charged "eye-watering" amounts of interest of up to 30% on an annualised basis.
Matt Brewis, director of insurance at Britain's Financial Conduct Authority (FCA), also told lawmakers last week he had heard "heartrending stories" from people trying to make ends meet as costs such as insurance rise.
Insurers must make sure that costs associated with premium finance - payment in monthly instalments - represent fair value and must be aware that many policyholders cannot afford to pay for their insurance upfront, the ABI said in guidance for members.
Insurers should make sure charges are "reasonable" when compared with other payment options, such as a credit card, the ABI added.
Mervyn Skeet, director, head of general insurance policy at the ABI, said the trade body's new principles were "one of a raft of actions we are taking to tackle the cost of motor insurance, which we know is putting pressure on households, especially those on lower incomes".
Inflation in the cost of claims drove motor insurance premiums up 25% last year, the ABI said.
Monthly payments incur more administration costs for insurers than annual payments, and do not provide them with an annual upfront sum which they can invest in their business, it added.
The ABI said it would publish a report by summer 2025 on the impact of its guidance on policyholders.