The UK financial watchdog's probe into the insurance industry's prices for paying in monthly instalments was played down by City analysts, after a big government-led announcement on Wednesday morning.
Launched as part of a new government 'task force' focused on the insurance sector, the Financial Conduct Authority investigation it to examine whether people are being overcharged to pay for car and home insurance in instalments, which is funded via premium finance.
The Transport Secretary and Economic Secretary to the Treasury said the taskforce, bringing together the Association of British Insurers, Citizens Advice, Which? and Compare the Market, would "tackle spiralling costs of car insurance".
Analysts at broker Panmure Liberum said the probe had been "well flagged" and that the typical annual percentage rate (APR) is between 20-30% according to the FCA’s research.
"We think it is unlikely that the FCA will stipulate a zero APR given the costs for the insurers to offer this option."
The monthly option is useful for many people who cannot afford to pay the insurance premiums upfront, they added.
"We think the FCA will and should focus on the claims handling processes and intermediaries that inflate claims in order to bring down the cost of insurance to the consumer."
UK motor insurers made an overall underwriting loss in 2022 and 2023 and have only broken even on average across the market over the past 10 years, the analysts said.
The industry "is not generating excessive profits and has already been through several rounds of pricing reforms".
Sabre Insurance Group PLC (LSE:SBRE) has limited exposure to premium finance as compared to Admiral Group Plc (LSE:ADM) and Direct Line Insurance Group PLC (LSE:DLG), they noted.