The Financial Conduct Authority (FCA) has announced the provisional findings of its market study into general insurance add-on products, which was launched by the Financial Services Authority (FSA) in December 2012. The FCA found that competition in the markets for general insurance add-ons is not effective and that this can lead to poor consumer outcomes. Consumers can be significantly overpaying when they buy products as add-ons.
Christopher Woolard, director of policy, risk and research at the FCA, 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 in respect of the supply of general insurance add-ons, and this report also outlines a number of proposed remedies. We believe our proposals will address these issues and prevent consumers paying for poor-value insurance products that they may not need or use."
Key findings included:
- a lack of competition and information at point of sale, preventing consumers from making comparisons and informed decisions about products;
- 25% of consumers who bought insurance as an "add-on" were not aware that they could buy the product separately elsewhere;
- 58% of add-on buyers did not make comparisons with other policies in the market, compared to 22% of buyers of "stand-alone" products;
- 38% of add-on buyers said they had not planned to buy add-on insurance before the day of purchase;
- 69% of add-on buyers could not accurately remember how much they paid for the product three to four months later, and 19% could not even remember buying it. There were particular concerns about GAP insurance, where the sales process in car showrooms often leaves individuals believing that the only source of the product is the showroom where they are buying the car.
The FCA is proposing a number of remedies to address these issues, including:
- imposing a requirement that customers who purchase GAP insurance as an add-on confirm that they want the product in the days following the sale of the primary product;
- banning pre-ticked boxes;
- requiring firms to publish claims ratios to highlight low-value products; and
- improving the way that add-ons are offered through price comparison websites.
The FCA says that it aims to publish its consultation on remedies before the end of 2014.