Insurer Admiral Group Plc (LSE:ADM) fell 3.5% after the government called on the Financial Conduct Authority to launch a market-wide probe into whether people are being overcharged to pay for car and home insurance in instalments.
Motor insurance premiums have grown by an average of 21% since June 2022, according to analysis by the City watchdog, far higher than in comparable economies such as Germany, France, Spain and Italy.
As a result, it said it would investigate "whether people who borrow to pay for motor and home insurance are receiving fair, competitive deals”.
Insurance is estimated to be paid in instalments by more than 20 million people in the UK via what is known as premium finance, which equates to taking out a loan to spread the up-front cost into between 10 or 12 monthly payments.
But with the average yearly rate on the amount of money borrowed ranging between 20% to 30%, the FCA said it is "concerned that premium finance may not be providing fair value".
The financial regulator said that the review will examine whether the products represent fair value, how well customers are made aware of their financing options and the role of commissions.
The FCA probe is part of a government task force, where transport secretary Louise Haigh and economic secretary to the Treasury Tulip Siddiq have brought together the Association of British Insurers, Citizens Advice, Which? and Compare the Market to "tackle spiralling costs of car insurance".
Haigh said: "Car insurance is an essential, not a luxury... That’s why we’re taking direct action to bring insurance companies and regulators round the table to discuss how we can crack down on spiralling costs."