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The policy statement lays out two more remedies for the add-on insurance market:

  • A ban on opt-out selling.
  • Improving the information provided to customers buying add-ons.

These remedies are in addition to the deferred opt-in for GAP and the proposed introduction of value measures, which the FCA are implementing following their add-on market study in 2014. The FCA has concluded from the study that the add-on insurance market was not competitive enough and would benefit from a range of remedies.

The policy statement also gives feedback from the FCA consultation CP15/13 that included proposed final rules and guidance for the add-on market. The proposed rules and handbook guidance will come into force on 1 April 2016 when firms will be expected to comply. In addition, the policy statement includes non-handbook guidance which comes into immediate effect with firms expected to have made changes to their sales process by 30 September 2016 to reflect this.

Banning Opt-Out Selling

The FCA intends to ban the practice of opting-out for add-on insurance products. The FCA believe this causes a consumer to take products by default and to not actively choose to buy an insurance product.

The Definition of an Optional Product

The FCA in their consultation asked about the definition of an optional additional product in the rules. Feedback to this question queried the width of the definition used as being too wide and left it open to interpretation. In the policy statement the FCA stand by their definition and therefore the definition will remain that an optional product includes any type of good, service or right obtained in connection with, or alongside, a primary product – whether it is financial in nature or not.

Application of the Ban to Renewable Add-Ons

The ban will be applied in two ways dependent on whether the insurance product was bought before or after the new rules are implemented.

For sales made before implementation there are transitional rules which give firms the option to obtain either an active election to buy from a customer or take reasonable steps to inform their customers that the renewal of their add-on is optional and they may elect not to renew. There is no prescribed way that this should be done, although the FCA believe writing to or calling a customer at their next renewal would serve the purpose. The FCA believe the requirements should apply to all customers.

For renewals of add-ons sold after the rule implementation an active election to renew would not be required providing:

  • The customer has actively elected to obtain the add-on.
  • The add-on is offered on substantially the same terms.

These new rules will come into effect on 1 April 2016.

There are some products not captured by the rules.

  • Free products, providing they will not become chargeable in the future.
  • Unbreakable bundles.
  • Options chosen on price comparison websites to be auto renewed.

Proposed Information Requirement

The FCA market study concluded that the way information is provided to consumers may have a harmful impact and affect the way they make decisions. To address this the FCA propose new rules to lay down how information should be provided.

Rules will be changed to direct that information must be provided to customers in an appropriate and timely fashion that allows a customer to make an informed decision (ICOBS 6.1.SR). This handbook guidance will also be changed to make it clear that the information provision equally applies to add-on as well as stand-alone insurance. Also, additional non-handbook guidance will detail ways firms can address specific issues with add-ons that the market study highlighted.

For more information please contact the NFDA on 01788 538332.

Posted by Sue Robinson on 09/10/2015