On 28 September 2015, the FCA published Policy Statement PS 15/22, containing feedback on CP 15/13 and final rules and guidance following its 2013 Market Study (published in March 2014) on the use of add-ons in general insurance.

A remedy that reaches beyond the insurance sector

While the issue of add-ons was investigated in the context of a market study specific to the insurance sector, that study has given rise to rule changes across the full spectrum of financial services. PS 15/22 contains new Handbook text to be inserted into COBS, CONC, BCOB and MCOB (as well as ICOBS) providing that firms must not enter into an agreement where a charge is payable (or may become payable) for an optional additional product, unless the customer has actively elected to obtain the additional product. The only add-ons that will be permitted to be sold on an opt-out basis are free ones (but the prohibition will kick back in if the firm attempts to make a charge for the additional product at renewal).

When it hits

The amended Handbook text will come into force on 1 April 2016.

In addition, the FCA has said that it expects its new non-binding “guidance” (surely a misnomer) in relation to the provision of information to customers about add-on products should be reflected in firms’ sales practices by September 2016.

Don’t forget your ARs

The FCA has also included a clear warning in PS 15/22 that it expects firms to make sure that any Appointed Representatives have amended their own sales processes by the same date. This may be just a one-liner, but we predict with some confidence that it will be cited as an “aggravating factor” in the FCA enforcement notice for the first firm that is subject to disciplinary action for failing to ensure that its ARs comply with these new rules.

Further fallout from the add-ons market study

The FCA is also considering, as a result of the same Market Study, introducing so-called “value measures” for general insurance products sold to retail customers (excluding high net worth individuals). The FCA has proclaimed that it is “committed to introducing such measures in order to shine a light on poor value in the market place.”  The idea is that insurers will have to report key metrics to the FCA on a regular basis, and the FCA will then publish the information to allow consumers (and consumer bodies) to undertake a comparative analysis. In June 2015, the FCA published a discussion paper (DP 15/4) on which value measures it should choose, deadline for comments on which was 24 September.

The FCA has made clear that it is intent upon introducing value measures – the only real question now is which metrics will be selected for publication.  Following the close of the period for commenting upon DP 15/4 on 24 September, we now expect to see a decision relatively soon. Our hope is that respondents’ views on the appropriate metrics will have an impact on the selection process, and that the FCA will ultimately choose a more sophisticated measure than simply claims ratios per product line (which was its first suggestion).