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The FCA published on 11 March 2014 their provisional findings from their market study into General Insurance Add-ons. The study looked into five add-on insurance products: travel, Guaranteed Asset Protection (GAP), gadget, home emergency and personal accident insurance.
The FCA have concluded from their study that the market for add-on insurance is flawed. They believe from the study that the way add-ons are currently sold has a clear impact on consumer behaviour and affect their decision making. They believe consumers focus is on the primary product and not any add-on products. However, they did conclude that consumers understanding of insurance policies and products was poor both for add-on and stand-alone products. Finally, they were also concerned that claims ratio for some products, including GAP, was too low and did not evidence good value for money.
The FCA perceive there is a particular problem with the GAP insurance market. They feel customers are less likely to shop around for such products and also suffer from less knowledge about the product than for other add-ons. They believe few customers actually planned to buy GAP and are unaware that they could shop around to get the best deal. They concluded that point of sale providers, such as car dealers, hold a strong competitive advantage.
The FCA also determined that the way GAP is sold at point of sale in a face to face environment accelerates some consumer behaviour. Further, the low value of GAP compared to the higher value of a primary product, such as a car, and the concern regarding risk if they do not take the product enforces this.
The FCA have proposed a series of remedies to address the problems they see:
Why these Remedies
The NFDA has a number of concerns about the report. The samples for the consumer surveys concerned were very small and were undertaken before significant change in the market. Much of the data used by the FCA relates to 2011/2012 rather than 2012/2013, which also does not show current market conditions.
The FCA themselves comment in the report that consumers do not always shop around, as they buy based on convenience and peace of mind, not just price. They also note that providing additional information to customers is not always the answer.
The proposed deferred opt-in risks leaving consumers uninsured. There is concern that customers will not continue to buy GAP and instead opt to rely on motor insurance to cover the risk. However, there is good evidence to suggest that motor policies do not cover the same risk and most policies will only pay out on a ‘new for old’ basis for a car in its first year of life. The FCA themselves even acknowledge there could be a problem and that this is an area that needs more work.
The FCA also want to rush into place the ‘opt-in’. This not only risks the impact of the change not being properly assessed, but also that the market will not develop quickly enough to accommodate the change. The FCA acknowledge that stand-alone options for GAP are limited.
The NFDA will be responding to the FCA study. The FCA have given a very short time frame of 8 April for responses which we believe is too short for such a major change and we have therefore requested for an extension. We would be pleased to have members views and would gratefully receive any data or information that will support our position.