FCA promises crackdown on 'poor value' insurance

Smartphone Image copyright PA
Image caption Add-on insurance is often sold with mobile phones

The insurance regulator, the Financial Conduct Authority (FCA), has promised to crack down on so-called "add-on" policies.

It said such policies offer "poor value for money".

"Firms must start putting consumers first, and stop seeing them as pound signs," said Christopher Woolard, director of policy at the FCA.

The insurance industry rejected the accusations, calling some of them unhelpful.

Add-on insurance is where a policy is sold alongside another product.

For example, customers buying a mobile phone, or a holiday, are often offered insurance at the same time.

Nearly 3,000 consumers have complained about such policies in the past nine months.

The FCA found that a quarter of customers buying them were unaware that they could get similar products elsewhere.

And more than half of such customers did not compare the different policies available.


The FCA judged add-on policies by their "claims ratio".

This measures the proportion of the initial cost of a product that is eventually paid out under the policy.

In the case of add-on personal accident insurance it found that the claims ratio was just 9%.

In the case of Guaranteed Asset Protection (GAP) policies - often sold with cars - it found that just 10% of the full value was returned to claimants.

In comparison, regular household or motor insurance policies paid out 64% of the original purchase price.

As a result, the FCA said many consumers may be paying for policies which are poor value.

But the industry said the claims ratio was not a good way of measuring performance.

"The emphasis upon claims ratios is unhelpful; they are not an accurate benchmark of customer value, not least because they are affected by distribution costs for the insurer," said Hugh Savill, the director of regulation at the Association of British Insurers.

New Rules

The FCA is now proposing a number of changes, to protect consumers. These include:

  • Anyone who buys GAP insurance will have to confirm their intention a few days later
  • Pre-ticked boxes - committing customers to buying a policy by default - will be banned
  • Insurance companies will be required to publish claims ratios
  • Improving the way add-on policies are compared on websites.

The FCA is now consulting on the proposals, and will accept comments up until 8 April, 2014.

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