global insurance management

Premium Finance (2)


May 13 2013

Premium Finance (2)

Relevance:                   All firms that offer premium finance arrangements..

Action required:           Ensure appropriate systems and controls are in place.


In November last year, we alerted client firms to the review being undertaken by the FSA into arrangements covering insurance premium finance facilities.

In its last month of existence, the FSA completed its thematic review on this subject and issued a new Factsheet. 

The review work consisted of analysing:

  • specific questionnaire responses from 27 commercial insurance brokers,
  • correspondence from various sources, and
  • information gathered during firm assessments.

The overall objectives were to establish:

  • how much premium finance was being arranged,
  • what revenues were involved,
  • what control frameworks were in place,
  • whether the communication to clients was clear, fair and not misleading, and
  • whether conflicts of interest were identified and managed.

And the findings were:

  • 3rd-party premium finance providers charged higher interest than insurer-financed plans,
  • Insurer-financed plans not always available from brokers,
  • Premium finance plans provide a significant source of income to brokers,
  • Many brokers not recognise possible conflicts of interest.

As a result of this work and as a reminder to firms, the regulator has restated its position in that “where you arrange premium finance as part of arranging a contract of insurance, we regard it as likely that this constitutes part of the regulated activities to perform for your customer.”

Therefore, it is now essential to ensure that if this applies to your firm, that all your business practices, sales processes and documentation reflect your obligations, not least in matters of treating customers fairly!

So, if your firm is involved in arranging premium finance for clients, there are a number of things that you should do:

  • Check that relevant systems and controls are in place;
  • Check that conflicts of interest can be identified and managed,
  • Check that information given to clients, particularly on cost, is clear, fair and not misleading,
  • Check that commission from premium finance is included when responding to an income disclosure request.

The FCA has indicated that it will continue with the work started by the FSA and will be prepared to take action if concerns in this area remain or evidence of non-compliance is reported/obtained.

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