The Financial Conduct Authority (FCA) has focused on four remedies to improve competition for general insurance products which are sold alongside primary products ('add-ons') since completing its market study into general insurance add-ons in July 2014 (for further details please see "General insurance add-on market study and forthcoming rules"). This update examines the status of each of the FCA's four competition remedies.
Deferred opt-in regime for certain add-on guaranteed asset protection sales
With effect from September 1 2015, a deferred opt-in regime was introduced into the Insurance Conduct of Business Sourcebook (ICOBS) for certain guaranteed asset protection sales, as well as a prescribed information requirement (for further details please see "New add-on guaranteed asset protection insurance rules").
Banning opt-out selling for certain add-on products
On April 1 2016, new FCA Handbook rules banning opt-out selling across financial services come into force.(1)
The ban will apply to any add-on product – whether regulated or not – when sold alongside a regulated financial services primary product by an authorised firm (or its representatives), subject to a few exceptions. All sectors, including those outside of general insurance, will be affected and the primary product need not be insurance based. This remedy complements the existing opt-out selling ban under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulation 2013 (CCR), which came into force on June 13 2014 and applies where the primary product is non-financial (eg, guaranteed asset protection insurance sold alongside a car or mobile phone insurance sold alongside a handset). The new FCA rules will therefore close any gap in consumer protection (eg, covering breakdown cover sold alongside motor insurance or card protection sold alongside a credit card) without overlapping with the CCR.
The following exceptions will apply to the ban:
- auto-renewals of primary products;
- renewal of add-on products, provided that the add-on product contains substantially the same terms and the customer has made an active decision to purchase the product at some point (ie, on an opt-in basis, whether originally or subsequently);
- unbreakable bundles, where it is a condition or requirement of the purchase that the customer buy the other products forming part of the bundle;
- free add-on products, which are included at no extra cost (although the customer's active and express consent must be obtained before any charge at a later date is to apply);
- overdrafts; and
- unregulated credit union loans.
Firms which receive information from a price comparison website detailing what add-on selections a customer has actively made will not need to re-ask questions when the customer is taken through to the seller's website, but can do so if they wish.
Improving provision of information about add-on products
The FCA has introduced, with effect from April 1 2016, new handbook guidance in ICOBS, which clarifies that the requirement under ICOBS 6.1.5R to provide customers with appropriate and timely information, in a comprehensible form, applies to both standalone and add-on products.(2) On September 28 2015, the FCA also published, with immediate effect, its finalised non-handbook guidance for price comparison websites and other participants in the distribution chain on good practice in providing information to customers buying add-ons to general insurance products.(3) The FCA expects firms to implement any necessary changes to their sales journey by April 1 2016.
The handbook guidance, together with the non-handbook guidance, is intended to improve the information provided to customers about add-ons as well as when, and the way in which, such information is provided. The non-handbook guidance sets out a clear expectation that firms:
- identify and introduce to customers the most common add-ons earlier in the sales process;
- show to customers the annual (as well as monthly) price of add-ons; and
- improve customer comparability of primary product/add-on packages.
Introducing a value measure in general insurance markets
On March 1 2016, the FCA published a feedback statement(4) setting out its response to the feedback that it received to its June 2015 discussion paper(5) on three possible measures for increasing transparency over, and incentivising firms to improve, product value – in particular, by requiring firms to publish either:
- the claims ratio (ie, claims paid out as a percentage of the premiums paid);
- a package of claims frequencies, claims acceptance rates (ie, the proportion of claims accepted relative to the total number of claims made) and average claims payouts ('scorecard data'); or
- the claims ratio plus claims acceptance rates.
The FCA announced in the feedback statement that in Summer 2016, it will start piloting the collection and publication of scorecard data (possibly also including an average premium metric) as the market transparency measure. The pilot will focus on a small number of retail general insurance products and the data (collected at two points one year apart) will be split between firms, by add-on and standalone sales and by distribution channels. Under the pilot, the scorecard data will be published at firm level in percentage bands (eg, claims acceptance rates between 80% and 85%) on the FCA website. The FCA recognises that, for certain products, publishing a multi-year rolling average alongside a single annual reporting period will give a more complete picture.
The FCA intends to engage further with stakeholders on the pilot design ahead of its launch. The pilot results will then be used to refine the FCA's design of this market transparency remedy. The FCA has confirmed that, at this stage, it is not considering requiring disclosure of value measure information to consumers at the point of sale. The FCA believes that consumer organisations and other stakeholders are in a good position to assess and process the value measure information published on the FCA website into a clear format for consumers, so consumers will benefit from the information in this way.
For further information on this topic please contact Marisa Orr or Martin Membery at Sidley Austin LLP by telephone (+44 20 7360 3600?) or email (firstname.lastname@example.org or email@example.com or ). The Sidley Austin LLP website can be accessed at www.sidley.com.
(1) "General Insurance Add-ons Market Study – Remedies: banning opt-out selling across financial services and supporting informed decision-making for add-on buyers including feedback on CP15/13 and final rules and guidance" (PS15/22), September 2015, Appendix 1, available at www.fca.org.uk/static/fca/documents/policy-statements/policy-statement-15-22-general-insurance-add-ons.pdf.
(2) PS15/22, Appendix 1, Annex B, ICOBS 6.1.6AG.
(3) PS15/22, Appendix 2, "Guidance on general insurance add-on sales: appropriate and timely information".
(4) "Feedback Statement on DP15/4 – General insurance value measures" (FS16/1), March 2016, available at http://fca.org.uk/static/fca/documents/feedback-statements/fs16-01.pdf.
(5) "General Insurance Add-ons Market Study – Remedies: Value Measures" (DP15/4), June 2015, available at https://www.fca.org.uk/static/fca/documents/dp-15-4.pdf.
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