FCA Market Study – past, present and beyond

Background

We have regularly written about the FCA’s Market Study of General Insurance Add-ons which focused on Gap, gadget, Travel, PA and Home Emergency Assistance products. Regular RAG readers and ARAG blog followers may recall our previous position statements in response to the FCA’s provisional and final remedies reports.
 

To recap, the FCA found that the manner in which add-on insurance products are sold disadvantages consumers’ decision-making ability at the point of sale and that some insurance products (not just add-ons) do not provide good value to consumers.

 
The current position

The FCA has recommended further consideration be given by comparison website providers to improve how information about add-ons and prices is displayed to achieve a simpler customer journey and achieve greater transparency.	ARAG's position    This seems sensible although we do not intend to engage in dialogue with the FCA as website providers are best placed to do this.
introduced a deferred opt-out method of sale for GAP insurance (from 1 September 2015).	This is likely to improve customer awareness and understanding of GAP insurance and improve price competition. We have not responded to the consultation in relation to this remedy as we do not offer GAP insurance products.
consulted on banning opt-out sales of add-on products – CP15/13 closed June 2015.	We agree in principle to the ban and require our agents to offer ARAG policies on the basis of the customer opting-in, or by embedding cover into the underlying insurance. We explained in detail to the FCA why we feel that many of the assumptions and assertions made in the market failure analysis and cost benefit analysis do not stand up to detailed scrutiny. We consider the findings unbalanced and despite further exchanges with the FCA concerning the data relied on, we are not confident that the figures have been based on sufficient data.
issued a discussion paper about publishing claims ratio for most general personal lines insurance products  - DP 15.4 closed September 2015.	This is a potentially powerful measure that could have a profound impact. Mis-guided ratios will have the potential to wrongly steer consumers away from particular markets or products, deterring individuals from insuring and exposing them to immeasurable financial loss. Claims ratios risk being used by consumers as an alternative to engaging more fully with the products.  For LEI product : • the value is derived from the benefits of taking legal action rather than the legal costs incurred in doing so; • high claims ratios can be a symptom of failed legal actions that deliver poor consumer outcomes; • up to seven years  reporting period would be required to give an accurate ratio • products are not homogenous but are bespoke to meet  demands and needs  of particular customer profiles making it  impossible to produce like for like comparisons. We have urged the FCA to reconsider the scope of the claims ratio remedy. It is wholly unsuitable to inform value judgments about LEI and could damage access to justice at a time when the legal environment is exceptionally challenging for individuals.

The future

We hope the FCA takes our representations on board. Watch out for more blogs from us as soon as the FCA makes further announcements.