Shoppers throughout the UK will no longer be forced to uncheck a box in order to opt-out of add-on insurance as the FCA has deemed it a poor value for consumers, costing them £200 million a year.
In the financial watchdog’s investigation into the £1 billion a year market, the Financial Conduct Authority discovered customers being charged an extra £200 million per year on insurance products automatically being sold with mobile phones, cars, trips, and everyday household goods.
As a result of its findings, the FCA has called for a ban on all automatic add-on insurance policies that take place at the point of sale.
The organisation also wants to force insurance companies to publish their claims data in an effort to show consumers what poor value some of these “extra” insurance policies provide.
According to Christopher Woolard of the FCA, there is plenty of evidence suggesting it is time for the FCA to step in.
“There’s a clear case for us to intervene,” said Woolard.
“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,” he continued.
The FCA launched its first study into this £1 billion a year market in July of last year. The results of the study showed a lack of competition in the market as more than 50 per cent of consumers neglected to shop around for the best policy when policies are added on to other products.
In fact, the study found that nearly one-fifth of consumers did not even have a recollection of purchasing an add-on product.
Although various types of point of sale add-on insurance products were reviewed, much of the study’s focus was on guaranteed asset protection, or GAP, which is meant to cover the difference between what someone pays for their car and the amount their insurer offers them when the car is stolen or suffers enough damage to be written off.
Between 2008 and 2012, claims ratios for GAP insurance only equaled 10 per cent. In similar fashion, add-on personal accident insurance only had claims ratios of less than 9 per cent. This is in stark contrast to the 64 per cent claims ratio of personal insurance.
“It’s good to see the Financial Conduct Authority cracking down on poor-value insurance add-ons, and helping to prevent consumers being misled or caught out by signing up for products they don’t need,” said Richard Lloyd, executive director of Which?
A spokeswoman for the FCA declined to comment on when Britons can expect the automatic opt-in ban to go into effect, but she said the FCA will announce further action after the formal consultation process ends on April 8.