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As the Financial Conduct Authority’s (FCA) first market study into the practice of selling insurance add-ons gets underway, Chris Finney, Partner at Edwards Wildman Palmer, advises financial services firms that have been asked to complete an FCA market study questionnaire to consider carefully what they say, and how they say it.
The FCA is to conduct its first market study into the selling of insurance ‘add-ons’. The FCA will investigate whether there is sufficient and effective competition in the sector and whether customers are being provided with sufficient information to make informed decisions on their insurance products at the time of sale.
What’s the aim of the FCA market study?
The FCA has a competition objective: ‘To promote effective competition in the interests of consumers in the markets for regulated financial services’. The FCA’s market study is intended to help it meet this objective in respect of the general insurance add-on market. The aim of the study is to help the FCA:
• understand competition in the general insurance add-on market
• understand whether the market, and the competitive forces at work within it, are meeting consumers’ needs, and
• work out what (if anything) the FCA can and should do to make competition in the market work more effectively for consumers
What sort of data or trends are the FCA looking for?
The FCA wants to find out (for example):
1. Whether add-on insurance policies are too expensive—for example:
◦ If a consumer is offered an insurance policy at one price when he buys a car, a mobile phone or a holiday, could he buy materially the same cover from another provider at another time, for a much lower cost?
◦ Are profit margins and commissions in the distribution chain much higher than normal commercial rates?
2. Whether add-on insurance policies generally meet consumers’ reasonable needs and expectations—for example:
◦ How well do consumers understand these policies, and the things they will and will not cover?
◦ Are these policies generally sold in a way that helps consumers to understand them, or in a way that creates misunderstanding and increases the probability that consumers’ expectations will not be met?
3. Whether consumers are more or less likely to buy an add-on insurance policy if it’s offered or sold in a particular way and, if so, whether taking that approach to sales is in the consumer’s best interests or not—for example:
◦ Are consumers more likely to buy cover when they buy the associated product or service, because that’s when the val
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