Financial watchdog to ban add-on insurance on sales of products

Automatically added insurance policies are poor value for money and cost consumers £200m a year, says FCA

The days of shoppers having to untick a box to opt out of buying unwanted insurance could soon be over after the UK's financial watchdog stepped in to change the way add-on cover is sold to consumers.

After investigating the £1bn market, the Financial Conduct Authority found customers being overcharged by up to £200m a year for insurance products that were automatically sold alongside cars, mobile phones or household goods.

As a result it has now called for all automatic addition of insurance policies at the point of sale to be banned.

It also wants insurance companies top be forced to publish claims data, which will show what poor value for money some "extra" insurances offer.

Shoppers – particularly those booking travel related products online – often find themselves automatically opted-in to purchase insurance cover. Policies cost a few pounds but cover a range of extreme events that will rarely result in a claim.

Buyers can face a torturous process to get out of paying for these poor-value add-ons.

"There's a clear case for us to intervene," said Christopher Woolard, director of policy, risk and research at the FCA.

"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."

In July last year, the regulator's launched its first market study into this market which is worth around £1bn a year to retailers. The FCA said it found a lack of competition, with more than half of consumers failing to shop around when the policies were bundled with other products.

Almost a fifth of consumers could not even recall buying the add-on products, it found.

A particular focus of the study was so-called guaranteed asset protection (GAP), which covers the difference between the price paid for a car and the amount offered by an insurer if that car is stolen or written off. Generally sold to buyers of new cars, the GAP claims ratios from 2008 to 2012 averaged just 10%, it said.

Similarly, the claims ratio for add-on personal accident insurance was less than 9%. This compared with 64% for personal insurance sold to consumers, such as motor and household policies.

The FCA is proposing that customers should be required to confirm in writing that they want the GAP cover in the days following the initial sale.

The regulator's other remedies include banning pre-ticked boxes so customers actively choose to buy cover.

An FCA spokeswoman declined to say when consumers can expect to see automatic opt-ins banned. She said a formal consultation process will run until 8 April. Further action will be announced after that date.

Richard Lloyd, executive director of Which? said: "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.

"We want greater price transparency across the insurance market, including a requirement on providers to put last year's premium on renewal notices, so that consumers can find the best deal for them."


Miles Brignall

The GuardianTramp

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