The Financial Conduct Authority (FCA) has announced plans to crack down on the application of pre-ticked boxes aimed at getting consumers to buy add-on insurance products.
The move comes after it absolutely was found that people buying these products – which tend to be bolted on to other purchases likeholidays and cars, mobile phones, home credit and insurance cards – are being overcharged by £200 million annually.
Apart from a ban on pre-ticked boxes – which will ensure that consumers have to actively choose an add-on product – the FCA also wants to force companies to publish claims ratios.
This may help customers weigh up whether buying add-on insurance makes financial sense.
Consumers buying products they might not need
The add-on insurance sector is worth around £1 billion, but the FCA says people are spending money every year for products they might never need.
It also urges consumers to compare the prices in the insurance products before choosing whether to buy them.
Many also purchase it online or over the phone, though add-on insurance products are often sold to individuals face-to-face.
The FCA said one of the most common sales tactics is for the add-on insurance only to be mentioned at a late stage in the sales process.
It is then more difficult for consumers to check around and look for similar products elsewhere.
Gadget add-on insurance
In their report, the FCA quoted someone who was offered gadget add-on insurance, saying: It absolutely was only about £6/7 a month… the price of a couple of servings of coffee.
Christopher Woolard, director of policy, risk and research at the FCA, said: Many consumers are simply not getting value for money.
Firms must start putting consumers first and quit seeing them as pound signs.
Research by the FCA also found that a fifth of consumers who had bought add-on insurance had forgotten they made the purchase within four months.
Nearly seven in 10 people (69%) could not remember the exact price they had purchased their add-on cover several months after buying it, and 19% could not remember making the purchase whatsoever.
58% of consumers not shopping around
It had been also found that costs are not always clear, together with the buyer sometimes only told the cost a month instead of the total price, or the add-on costs are bundled in with the cost of their main purchase.
The FCA mentioned that one in four consumers who bought add-on insurance failed to know that they might have bought the cover separately elsewhere.
And only under three in five (58%) of consumers failed to shop around and compare the cover with other policies out there, while nearly two in five (38%) had not planned to buy add-on insurance before you make their purchase.
The FCA research included data through thetravel and gadget, home emergency, personal accident and guaranteed asset protection (GAP) add-on sector.
GAP cover, which can be usually sold during a car purchase, is aimed at bridging the gap between a car’s value at the purpose of purchase and the amount the buyer will get from their insurance when the car is written off.