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UK: FCA Market Study into General Insurance add-ons: FCA says industry must make changes

12 March 2014
The FCA has published its provisional findings and proposed remedies following its market study into the sale of general insurance add-ons.

The message was clear: competition in the market is not effective and changes must be made to address poor consumer outcomes.

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."

The market study (which is the first of its kind) was instigated by the FCA in July 2013 as part of its competition objective and focussed on five particular add-on insurance products:

  • Travel
  • Gadget
  • Personal accident
  • Home emergency
  • GAP (guaranteed asset protection)

A general insurance add-on is an insurance product that is sold alongside goods or services (e.g. a car or a holiday) or primary insurance products such as home insurance.

The market study has revealed that the add-on mechanism has a clear impact on consumer behaviour. Add-on buyers are less likely to shop around, less effective when they do shop around, and less sensitive to price.

This weak consumer engagement increases the point-of-sale advantage enjoyed by firms selling add-ons, and provides an opportunity and an incentive for them to sell products that might not meet consumers' needs or to charge high mark-ups (or both).

The FCA also found that the claims ratios for the five add-on products were almost all substantially lower than for more mainstream general insurance products, suggesting that the add-ons represent poor value for money.

The FCA estimates that consumers overpay for the five add-on products by around £108m to £200m per year.

Given these failings, the FCA is proposing a number of remedies, including:

  • breaking the point of sale advantage for GAP insurance (usually offered alongside car sales) and replacing it with a "deferred opt-in". This means sellers may explain to customers at the point of sale what GAP insurance is, and that it is available, but customers may only elect to purchase the insurance a stipulated period of time after the sale of the primary product;
  • banning pre-ticked boxes on application forms to ensure customers actively choose to buy add-on products; and
  • requiring firms to publish claims ratios to highlight low-value products, putting pressure on providers to deliver better value to customers.

The FCA is asking for comments on its report and proposals by 8 April 2014.


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