Regulator pledges to stop suspect sales and insist that customers are paid back – but business plan fails to distinguish brokers from other intermediaries

The FSA says it will take a hard line on add-on insurance sales this year.

In its business plan for 2012-13, the regulator expressed concern about some general insurance products, usually sold as add-ons to other products, which it says offer little value to customers and are badly sold and difficult to claim on.

But the report does not spell out how the FSA views the risks posed by insurance brokers selling add-ons or how it will handle those risks.

The regulator said that it would identify any problems with general insurance intermediaries selling add-on products, stop these sales and order that customers be paid back if necessary.

Stop ‘risky’ sales

The FSA report also said it would “increasingly” take action to stop sales that the regulator deems risky, rather than waiting for potential harm to occur.

However, the report gives few details about the sellers or lines of business that the FSA is concerned about, and the regulator declined to elaborate when contacted.

One problem is that the FSA’s definition of ‘general insurance intermediary market’ is wide. It groups general insurance brokers with other businesses such as mortgage brokers and third-party firms selling insurance.

Biba head of compliance and training Steve White said: “There are 13,000-odd firms selling insurance with intermediary permissions, but only 3,500 are insurance brokers. The FSA doesn’t distinguish.”

Mis-sold mobile insurance

The report does not state which add-ons the FSA will concentrate on, but Insurance Times understands that a priority is mis-sold mobile phone insurance offered by third parties with insurance permissions.

The FSA will not crack down on general insurance brokers that sell add-ons properly, White said.“There isn’t a problem in selling multiple products to customers, provided you are selling them in a compliant manner.”

However, the regulator is touring the country to quiz brokers on how they sell add-ons and handle client money, according to Branko principal Branko Bjelobaba.

He said some large motor brokers could become a target over how they sell add-ons. He said: “I’m not saying they all do it, but it’s the people with volume that are going to make money on it. A small high street broker will probably be more diligent.”

Two-hour interview

The two-hour interview with the regulator includes questions on which products are included within final premiums and how brokers judge a customer’s needs before selling them insurance.

Broker Network managing director Nick Houghton said that most general insurance brokers sold add-ons responsibly, but that other intermediaries were less scrupulous.

He said: “Some sales techniques from retailers are outrageous and I would applaud a regulator clamping down on that sort of activity.”

Pass notes: Add-ons

What else has the FSA published about add-ons?
Earlier this month the regulator published its Retail Conduct Risk Outlook 2012 document. This noted the trend for general insurance intermediaries to concentrate on low-cost, high-margin add-ons, and warned that this often led to incentivised selling and little understanding among consumers about what they were buying.

What kinds of policies are add-ons?
Commonly sold add-ons are breakdown cover, car key insurance, legal expenses insurance and gap insurance to cover depreciating car values.

What other insurance issues does the business plan cover?
The FSA will also be focusing on insurance fraud, Solvency II implementation, the Insurance Mediation Directive (IMD) and referral fees in 2012-13. The regulator said that it would publish a redrafted version of the IMD in the first half of this year.