The British government and the country’s Financial Conduct Authority have launched a review to address car insurance affordability concerns.

A cross-government taskforce backed by the FCA and insurance industry experts will identify factors driving up motor premiums and explore ways to keep them under control. FCA data shows motor premiums have risen an average of 21% since June 2022.

Meanwhile, the FCA has established a competition market study to examine whether consumers who borrow to pay for motor and home insurance are receiving fair, competitive deals.

The regulator says the study will review matters including the role of commissions and other potential barriers to effective competition in the motor and home premium finance market.

“People rely on premium finance to spread their insurance costs by paying in smaller monthly payments,” FCA director of competition Graeme Reynolds said. “We want to ensure that competition works well and make it easier for consumers to find the best deals.”

The market study’s terms of reference say rising insurance prices may be forcing more policyholders to use premium finance.

“For example, in 2023, motor insurance policyholders faced a 25% average increase in premiums compared to the prior year, driven by factors such as inflation and rising insurance claims,” the FCA says. “This may have increased the number of people needing premium finance, or other credit alternatives, to spread their insurance premium cost.”

A progress update and proposed next steps are expected during the first half of next year.

The FCA says as part of the government taskforce, it will analyse the causes of increased motor insurance costs, looking closely at claims costs, claims handling arrangements and factors affecting different types of claims.

It will also analyse the impact of rising prices on different customer groups, such as younger and older drivers and those from ethnic minority backgrounds or on lower incomes.

Association of British Insurers director-general Hannah Gurga says the industry is “aware just how tough the last couple of years have been for motorists and we have been working hard with our members to tackle the cost of claims that impact on premiums.

“While average premiums have fallen recently, there should be no loss of momentum on tackling costs and we look forward to bringing ideas to the taskforce table, building on the 10-point road map we released earlier this year.”

See the market study’s terms of reference here.