UK to crack down on mis-selling of insurance products
12 Mar 2014
The UK's financial watchdog has labelled ''add-on'' insurance products such as gadget, home emergency and personal accident cover as poor value for money and warned that customers are being overcharged by up to £200 million a year.
The Financial Conduct Authority has stepped in to change the way add-on cover is sold to consumers after its investigations into the £1-billion market found customers being regularly overcharged for insurance products that were automatically sold alongside cars, mobile phones or household goods.
As a result it has now called for all automatic addition of insurance policies at the point of sale to be banned. It also wants insurance companies to be forced to publish claims data, which will show what poor value for money some "extra" insurances offer.
Shoppers – particularly those booking travel-related products online – often find themselves automatically opted-in to purchase insurance cover. Policies cost only a few pounds but cover a range of extreme events that will rarely result in a claim.
Buyers can face a torturous process to get out of paying for these poor-value add-ons.
"There's a clear case for us to intervene," said Christopher Woolard, director of policy, risk and research at the FCA. "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."
In July last year, the regulator's launched its first market study into this market, which is worth around £1 billion a year to retailers. The FCA said it found a lack of competition, with more than half of consumers failing to shop around when the policies were bundled with other products.
Almost a fifth of consumers could not even recall buying the add-on products, it found.
A particular focus of the study was so-called guaranteed asset protection (GAP), which covers the difference between the price paid for a car and the amount offered by an insurer if that car is stolen or written off. Generally sold to buyers of new cars, the claims ratios under GAP from 2008 to 2012 averaged just 10 per cent, it said.
Similarly, the claims ratio for add-on personal accident insurance was less than 9 per cent. This compared with 64 per cent for personal insurance sold to consumers, such as motor and household policies.
The FCA is proposing that customers should be required to confirm in writing that they want the GAP cover in the days following the initial sale.
The regulator's other remedies include banning pre-ticked boxes so customers actively choose to buy cover.
An FCA spokeswoman declined to say when consumers can expect to see automatic opt-ins banned. She said a formal consultation process will run until 8 April. Further action will be announced after that date.
