Insurers force customers to pay up-front

An increasing number of people who prefer to pay for their home or car insurance by monthly direct debit are being told they can no longer do so when their cover comes up for renewal. Instead, they must pay for their cover up-front.

The move, which has angered many customers, is a result of insurance companies applying affordability checks to those paying by monthly premium ahead of their annual cover renewing. 

As a result of many household budgets coming under mounting pressure from the cost-of-living crisis, more people are failing these tests.

The checks are a regulatory requirement and result from the fact that when someone pays for cover in monthly instalments, they are in effect taking out a loan with the insurer. So an affordability check must be carried out before the loan is approved. None is required if the annual premium is paid in one go.

Sue and Mark Garoghan, from Worthing in West Sussex, were told last month by their insurer AA that they would no longer be allowed to pay monthly for their home cover when their policy renews this Friday.

With just a small credit card debt, a good credit score, no payment defaults and both in full-time jobs, they are flabbergasted by AA’s decision.

‘I’m appalled,’ says Sue, a 61-year-old energy specialist who lives with Mark, a postman, in a two-bedroom bungalow. We run our finances in a responsible way.’ When Sue confronted AA, it offered them a £50 discount if they paid up-front.

Sue’s mother, Lesley Kirkland, is livid. She says: ‘It doesn’t make sense. Many people, like Mark and Sue, like to budget.

‘Being given a month’s notice to pay a big three-figure sum seems so unfair. More unaffordable, I would say, than paying over 12 months.’

On Friday, AA said it would not be ‘appropriate to offer a customer credit if it was not affordable for them’.

It also said that only one in every 200 customers failed credit checks at renewal. The Association of British Insurers told The Mail on Sunday: ‘Our members are acutely aware of the pressures many households are currently facing due to the rising cost of living and are ready to do all they can to support financially vulnerable customers, such as offering to amend direct debit dates or payment holidays in some circumstances.

‘Insurers have to follow the same rules as all lenders.

‘However, if you are struggling to pay your insurance premium, you should speak to your insurer in the first instance as they may be able to help through a range of supportive measures.’

On Friday the Financial Conduct Authority said: ‘As the cost-of-living crisis rises, we have reminded firms of their responsibility to treat customers fairly and consider what further support they can offer, as access to insurance is vital.’

Have you been told you can no longer pay for cover by instalment? Email: jeff.prestridge@mailonsunday.co.uk