LONDON (Reuters) - Britain’s financial watchdog is proposing to crack down on the billion-pound market for “add on” insurance that people often buy unknowingly when they purchase items such as a car or a holiday.
Tuesday’s proposals from the Financial Conduct Authority (FCA) stem from an investigation launched last July which found poor competition, low levels of claims and consumers potentially being overcharged by up to 200 million pounds a year for products that they may not need or even use.
“There’s a clear case for us to intervene,” Christopher Woolard, director of policy, risk and research at the FCA, said in a statement.
“Competition in this market is not working well and many consumers are simply not getting value for money,” Woolard added. “Firms must start putting consumers first and stop seeing them as pound signs.”
The FCA, which was formally launched in April last year with a remit to protect consumers, reviewed the experience of more than 1,000 customers, using so-called behavioural research to understand how sales tactics affect how people decide to buy and how regulatory solutions should be shaped.
A quarter of consumers who bought “add on” insurance were not aware they could buy the same product separately elsewhere.
The watchdog is proposing several changes, such as an “aggressive cooling-off period” that forces a seller of add-on insurance to ask the consumer if he or she still wants the product in the days following the purchase.
Also, so-called pre-ticked boxes would be banned, meaning consumers would have to actively choose to buy such insurance.
The Association of British Insurers (ABI), an industry body, said the FCA’s study was “surprisingly generic” given the different products on offer.
“We hope and expect that the FCA will take a more market- specific approach to this as their work on this develops,” the ABI said in a statement.
Woolard told a financial conference in London there was no suggestion of mass mis-selling of products, but the same insurance was usually cheaper when bought separately than as an add-on to the product purchase.
The FCA has asked for comments from the industry on its proposals by April 8.
Editing by David Holmes