UK: FSA Announces Study of Add-on General Insurance Products


    On 19 December 2012, the Financial Services Authority (FSA) announced its plan to undertake a study into general insurance products sold as add-ons. Insurance add-ons are often sold with other, larger purchases, such as a car, a holiday or an electronic device.

    The FSA previously highlighted this market as one of concern in its Retail Conduct Risk Outlook 2012 report (RCRO) and, in preparation for the transition to the Financial Conduct Authority (FCA), is now developing its approach to competition by conducting research. The study therefore intends to examine whether there are “common features of the add-on markets that weaken competition and drive poor consumer outcomes“.

    Although the regulator has not yet defined what exactly will be analysed under the term ‘add-on’, it has said that it will focus on all of “the relevant markets” and will take account of both firms’ and consumers’ behaviour. It is possible that insurers and brokers could also come under scrutiny by the FSA, as the announcement cites the RCRO, in which the way general insurance brokers sold add-ons is criticised for being “not easy for customers to understand“. Add-ons are labelled an ’emerging risk’ in the RCRO, and the FSA warns that some firms might “incentivise staff to pressure sell or to automatically include the add-on without explaining the cover properly or that it is optional“. Whether or not enforcement action will be generated against individual firms should the FSA not be satisfied with the study’s findings remains to be determined.

    The FSA will aim to complete its study by the third quarter of 2013, with the results published shortly afterwards. Any subsequent proposals for intervention will be handled by the FCA.

    The move by the FSA comes as a fresh regulatory probe, on top of the Competition Commission’s investigation into the supply and acquisition of private motor insurance in the UK (previously blogged here).

    A copy of the FSA’s statement can be viewed here.

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