On 25 March 2015, the Financial Conduct Authority (FCA) published its proposed remedies following a market study into general insurance ‘add-ons’. The market study was the first undertaken under the competition mandate given to the FCA. The study found that competition for add-on sales is not effective and has an adverse impact on consumer behaviour and that selling products as add-ons provides the primary product provider with a clear point of sale advantage that can restrict choice and competition for consumers. The FCA study found that opt-out sales resulted in consumers purchasing products that they would not otherwise buy.
The FCA is now proposing banning any sales of add-ons that require the customer to opt-out of the sale and also issuing guidance to help firms provide more helpful information to customers buying add-ons, especially when purchased through price comparison websites (PCWs). Opt-out sales would include sales where the customer has to un-tick a pre-ticked box in order to choose not to buy an add-on insurance policy. The proposed ban will apply to any add-on product sold by a firm alongside another regulated financial services product.
In terms of the guidance proposed to make it easier for customers to make an informed decision about add-on products, the FCA proposes that add-on options should be introduced earlier in the sales process, enabling customers to make comparisons of the primary package and the add-ons easier by setting out a clear price for the package, and display both the monthly and annual cost of the add-on product. The guidance will also remind firms of their obligations under ICOBS when selling add-ons in terms of providing the customer with details of the features, benefits, exclusions, terms and price of the product.
The proposed ban on opt-out sales in financial services contracts follows the banning of such sales in non-financial services contracts under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, which implement the Consumer Rights Directive (2011/83/EU) into UK law.
The FCA invites comments on these proposals by 25 June 2015.