On September 28, the Financial Conduct Authority (FCA) issued Policy Statement 15/22 containing final rules and guidance following its consultation on remedies in the general insurance add-ons market. Following its 2014 market study of the GI add-ons market, the FCA proposed four remedies to address ineffective competition:
- Introducing a deferred opt-in for Guaranteed Asset Protection Insurance (GAP).
- Introducing value measures across the GI market
- A ban on opt-out selling
- Improving the information provided to customers buying add-ons.
The FCA consulted in March 2015 on rules banning opt-out selling and improving customer information and PS15/22 sets out the final rules and Handbook guidance implementing these two remedies.
Banning opt-out selling
The final rules and guidance do not differ significantly from the measures consulted on, however, the following points regarding the opt-out ban are worth highlighting:
- The definition of an optional additional product includes any type of good, service or right obtained in connection with, or alongside, a primary product – whether it is financial in nature or not. It is the FCA’s view that this definition will include ‘optional extras’ such as separate baggage cover on travel policy, or accidental damage on a home insurance policy. However, the definition does not include setting an excess or sum-insured.
- Firms must take reasonable steps to obtain consent to the renewal of add-ons from customers that had purchased add-ons on an opt-out basis, for example, contacting the customer at renewal to let them know that the add-on could be removed on request. Transitional rules give firms the option to either obtain an active election from their customers, or take reasonable steps to inform customers that renewal of the add-on product is optional, that they may elect not to renew and also the effect, if any, of the non-renewal of the primary product. The FCA believes that the seller of the product will generally be in the best position to inform the customer of this information.
- The ban does not apply to free products, nor to unbreakable bundles such as packaged bank accounts. The FCA decided that because there is no optionality in an unbreakable bundle – the customer either agrees to purchase all of the products or not – the ban on opt-out selling would not apply. It does apply to breakable bundles as these offer customers a choice on their add-on purchases. Options selected on a price comparison website (PCW), the option to auto-renew and overdrafts are also outside of the scope of the ban.
Provision of information
PS15/22 also includes guidance aimed at enabling customers to make an informed decisions when purchasing add-ons. Firms must ensure that appropriate and timely information is provided, in a comprehensible form, for add-on products as well as standalone products. The finalised Handbook guidance clarifies that the information provision rule found in ICOBS 6.1.5R applies in the same way to any policy, regardless of whether it is sold on its own, in connection with another policy, or in connection with other goods or services.
The FCA has also finalised non-Handbook guidance on the information provision remedy which is contained in Appendix 2 of PS15/22. This guidance addresses the problems he regulator found with the way customers are provided with information about add-ons during the sales journey. The guidance suggests good practice in terms of introducing add-ons in the sales process, activities that insurers and intermediaries could undertake, guidance for PCWs acting as intermediaries and pricing considerations.
The rules banning opt-out selling and Handbook guidance on the provision of information come into force on April 1, 2016. Firms will be able to view the new Handbook rules online before this date.
The non-Handbook guidance on delivering appropriate and timely information for add-on sales is effective immediately. The FCA recognises that firms will need time to implement the necessary changes but expects firms to have made these changes to their sales journey by September 30, 2016.