Firms that sell general insurance add-ons will be required to highlight poor value products to consumers under new proposals announced today by the Financial Conduct Authority (FCA).
Consumers overcharged by £200m
The FCA launched an investigation into the £1bn add-on market in July 2013 which found that consumers are potentially being overcharged by up to £200m per year for products they may not even need.
The probe was launched in the same month that the FCA fined Swinton Group Limited £7.4m for mis-selling monthly add-on insurance policies.
Proposed changes for add-on firms
Under the latest proposals, the FCA wants companies to publish their claims ratios, or the proportion of the retail price paid out to settle a claim, after it found evidence that consumers may be paying for low-value products with low claims ratios.
Which? executive director Richard Lloyd said: ‘It’s good to see the Financial Conduct Authority cracking down on poor value insurance add-ons, and helping to prevent consumers being misled or caught out by signing up for products that they don’t need.
‘We want greater transparency across the insurance market, including a requirement on providers to put last year’s premium on renewal notices, so that consumers can find the best deal for them.’
The regulator has also proposed:
- Banning pre-ticked boxes to ensure consumers actively opt in when buying an add-on product
- Imposing a requirement on companies that sell Gap insurance as an add-on to the main policy to confirm with the customer that they want the product
- Improving the way add-ons are sold through price comparison sites, including how and when they are introduced.
Case for intervention
Christopher Woolard, the FCA’s director of policy, risk and research, said: ‘There’s a clear case for us to intervene. Competition in this market is not working well and many consumers are simply not getting value for money.
‘Firms must start putting consumers first and stop seeing them as pound signs.’
Lack of competition and information
The FCA’s study of firms and more than 1,000 consumers found that customers were prevented from comparing and making informed decisions about products because of a lack of competition and information at the point of sale.
Its research found that 25% of consumers who bought an insurance add-on were not aware they could buy the product separately elsewhere.
And 69% of people who bought an add-on couldn’t remember how much they paid for it three to four months later, and 19% couldn’t remember buying it in the first place.
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