I’ve previously warned that the Financial Conduct Authority was putting the sale of add-on products under the spotlight. In publishing the results of its study into this £1bn market yesterday, the regulator painted a damning picture.
When it first announced its market investigation last year, it found poor competition, low levels of claims and consumers potentially being overcharged by up to £200m each year for products they may not need or even use. It would seem that its analysis of detailed evidence about firms and consumers in the travel, gadget, GAP, home emergency and personal accident add-on insurance markets backed this view up.
Key findings included that there is a lack of information at point of sale, preventing consumers from making comparisons and informed decisions about products. It also found that depending on how information about the add-on purchase was presented to consumers, they could be up to four times less likely to shop around than they would for stand-alone purchases. According to the FCA, 38% of add-on buyers said they had not planned to buy add-on insurance before the day of purchase.
The FCA is proposing a number of remedies to address the issues that it has found in the market including banning pre-ticked boxes and forcing the publication of claims ratios, and is asking the industry for comment on its report and proposals by 8 April.
As ever, mortgage intermediaries will find themselves caught up in a maelstrom not of their making. While I don’t believe the outcomes will directly affect intermediaries and I think the FCA is directing its wrath in particular at the sellers of GAP insurance in the motor arena, I do fear that this review will make them wary of add-on sales. However in turning their back on the sale of products such as home emergency, intermediaries would not only be cutting off a valuable income stream but could also potentially leave their customers worse off in the long-run.
The bottom line is that intermediaries can successfully continue to provide their customers with add-on products so long as they stick to a compliant sales process in line with the FCA’s rules. First and foremost this means establishing the customer’s individual needs and requirements as well as their current levels of insurance cover to ensure the proposed add-on is suitable. If it is, then it’s simply a question of providing detailed information to ensure the customer can make an informed decision
The FCA wants to ensure that consumers get value for money – and that’s at the heart of the service that intermediaries offer to their customers. Some industry commentators have branded the study as “good news for good brokers, but bad news for bad brokers”. In my experience, the intermediaries we deal with certainly fall into the first part of the statement and therefore should not be deterred from continuing to sell add-ons while the FCA goes after those firms that simply bundle them with the main product purely for profit.
Kevin Paterson is managing director of Source Insurance