Industry chiefs see larger brokers and aggregators in firing line over add-on policies

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Insurance industry chiefs gave a mixed reaction to the news of a FSA probe into add-one insurance products as revealed by Insurance Times yesterday.

Following Insurance Times’ report, the FSA published details of the probe it intends to carry out next year on its website late last night. The regulator said it will undertake a study into general insurance add-on policies often sold with larger purchases “such as a car, a holiday or an electronic device”.

It also warned it will take note of what was said in its Retail Conduct Risk Outlook 2012, which included a reference to breakdown cover and legal expenses and then ‘firms manufacturing general insurance products of limited utility to consumers, which may therefore represent poor value and result in consumer detriment’.

The watchdog intends to complete the study by the end of the third quarter of 2013. It said it is concerned consumers are focused on the primary [insurance] sale, not on the cost and value of the add-on insurance and that the terms of add-on insurance sometimes mean products are of limited use to consumers.

Compliance expert Branko Bjelobaba said: “It shows that the FSA are very keen to understand the sales process behind add-on insurance products.

“We know there are firms out there that treat it as an additional area of revenue. There is nothing wrong in that as long as you’re adopting a compliant sales process, but some insurance brokers are simply flouting the rules when it comes to selling add-on insurance products.

“The FSA can do thematic reviews in any area it chooses to do so. Add-ons have caused it concern for some time.”

Crown Insurance Consultants managing director David Martin welcomed the probe and told Insurance Times it was long overdue. “Many large sized brokers use add-ons. It’s how they make their money. I used to work for a small insurance broker that was taken over by a larger broker and the attitude was: ‘You have to sell add-ons or else,’” he said.

“The larger brokers don’t make money on the insurance premium, they are happy to discount and loose commission, they like the idea of the add-ons but you have got to be careful because the customer might already be covered in the main section of the policy.

“Some of this stuff is not very good. You look at the policies and think why would anyone want to buy that?”

Meanwhile, MCE chief executive Julian Edwards said the FSA would leave the broker unaffected as it did not offer add-ons.

But he added he was sure if a broker sold policies correctly or the customer was unaware of being sold an add-on: “then that is a clear case of systemic mis-selling and the FSA is there to protect the consumer”.

RWA Group chairman Robin Wood warned the FSA against taking a blanket ban approach to add-ons, however, and suggested that smaller brokers that offered such products did so in good faith and offered their customers genuine advice and value for money.

“I suspect this is more about aggregators who hide what they are charging so they premium is quoted at £200 but turns out to be £300 after all the add-ons,” he said.

DAS Legal Expenses head of marketing Bob Screen said that while it was difficult to see the value in some add-on products he believed legal expenses cover would be unaffected.

“There are add-ons and there are add-ons. It’s a question as to what value they bring to the end user. In the case of legal expenses this has been proven to be a key add-on and has been for a long time,” he said.

“Our view is that legal expenses provides a very good product for customers. We have no worries about legal expenses and we would draw a line between legal expenses and some other add-on products in the market.

“We have products with limits of £50,000 and £100,000 so the cover customers are getting is extensive. All the changes the government is making with LASPO just make legal expenses even more important,” Screen added.