Clarifying the rules on unbreakable bundles

FCA Policy Statement 15/22.  General Insurance Add-Ons Market Study – Remedies: banning opt-out selling across financial services and supporting informed decision-making for add-on buyers

Readers will appreciate that as a General Managing Agent it is beyond our remit to interpret the FCA's add-on remedies policy statement 15/22 (PS15/22) on behalf of our agents. The document sets out:

• rules and handbook guidance in relation to the FCA's ban on opt- out selling of add-on insurance effective from 1 April 2016;
• non-handbook guidance on giving appropriate and timely information when selling add-on insurances so that customers can make an informed decision.  The non-handbook guidance applies immediately and the FCA expects firms to have made the necessary changes to their sales journey by 30 September 2016.

This Blog provides our comments on PS15/22 with regard to the opt-out selling ban of add-on insurance as we have witnessed some confusion about the new rules.

We have received queries from insurers and brokers who are concerned about compliance advice they have been given.  In particular firms are being advised that "auto- embedding"  of covers such as legal expenses and assistance services insurance within a primary insurance product – such as home buildings  or contents policies is caught by the FCA ban.  The FCA refers to this practice as "bundling".

While we cannot give compliance advice, it may help to highlight what the FCA has said in PS15/22.

PS15/22 paragraph 2.4 sets the scene by referring to an “optional  additional product". This leads to an early inference that the ban is not intended to apply to covers that are always automatically included within a primary product.

Paragraph 2.10 describes the scope of the remedy, "this remedy would apply to any add-on product when it is sold alongside a regulated financial primary product…….This means that add-ons such as title insurance sold in addition to a mortgage would be covered, as would warranty cover sold in addition to home emergency insurance".  This description is clearly with odds with the position where additional cover is provided as a feature that is integrated into a primary product.

The FCA helpfully devotes paragraphs 2.16 and 2.17 to clarifying that because there is no optionality in an "unbreakable bundle" – the customer buys the whole of or none of the features – "the ban on opt out selling will not apply".  They go on to assert that the ban will apply where a menu of covers is available for the customer to select from.  While acknowledging that "unbreakable bundles can reduce customer choice, in the sense that the customer is unable to tailor the bundle to their individual needs (the FCA) does not believe the ban on opt-out selling is the appropriate way to address this."

In conclusion the effect of 2.16 and 2.17 allows LEI, Home Emergency or other products that may formerly have been offered to customer as an add-on to a primary insurance product to be integrated into it.  An example would be an unbreakable bundle that provides home buildings, home contents, accidental damage cover, annual travel and legal expenses insurance. 

We would say that including legal expenses and assistance services as an integral policy feature by "auto-embedding" cover makes more sense at this time than ever before. The alternative "opt-in" method of sale risks individuals missing out on valuable insurance protection.