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Automotive e-briefing: General Insurance Add-Ons: A significant income stream and risk exposure?

  • United Kingdom
  • Diversified industrials - Automotive
  • Diversified industrials - Industrial engineering


The 10 September 2013 deadline is looming for responses to the thematic review into “GI (general insurance) Add-Ons” being conducted by the UK Financial Conduct Authority (“FCA”). The FCA has described GI Add-Ons as “insurance products” that are sold “alongside primary products”, which could be either:

  • policies covering, say, “home insurance”, or
  • “non-financial products”, such as cars, mobile devices or passenger flights.

From the FCA’s published material, including the Final Notice against Swinton Group from July 2013, a wide range of businesses involved in selling insurance, in the automotive sector, have the potential to face issues with the products they sell. The product lines or types of risk in issue include:

  • utility or appliance breakdown, damage or failure – for instance: boilers, drains, electronic or electrical equipment, plumbing, or wiring;
  • injury or illness sustained, contracted or manifested in the UK or abroad, including while travelling; and
  • loss of, damage to, or liability in respect of cars, motor bikes and vans.

The issues raised by GI Add-Ons are similar to those raised by payment protection insurance (“PPI”), in that the risk of regulatory or compliance failings and liabilities arises from both the terms of cover and the practical execution of sales techniques. However, the insurance law and coverage issues are especially significant in relation to GI Add-Ons, because the interaction of an Add-On with a market-standard, or “primary”, insurance policy results in an insured facing the particular risk of:

  • buying cover which he or she does not need, because the risk in issue is already covered by the primary policy, or even
  • prejudicing cover under the primary policy.

Key risk factors

Regardless of the thematic review, the FCA has identified various sales practices, and governance, risk management and compliance controls, which it regards as inadequate, in particular in the context of non-advised face-to-face or telephone sales. Many of these factors will be familiar to those who have followed the regulatory programme with respect to the PPI market, and include:

  • the scripts for sales need to reflect fully applicable regulatory requirements;
  • the data derived from script adherence and monitoring must be genuinely revealing of the extent to which customers are treated fairly, and such treatment (ie the regulatory principle or concept of “TCF”) sits at the heart of a firm’s business model; if a choice is being offered, it must be a genuinely informed choice;
  • a proper explanation must be given as to whether a period of cover is genuinely “free”, and how such period can be terminated;
  • a firm must be prepared to operate remuneration systems such that non-compliant sales do not contribute to incentive schemes, even to the extent that commercially effective, but non-compliant, sales personnel are not rewarded.

Firms needs to subject their operating systems to stringent scrutiny and audit. If adverse findings result, firms should consider undertaking:

  • one or more forms of past business review (“PBR”), such as market research on the extent to which customers have truly understood the cover they have bought, and if necessary,
  • a customer contact and remediation (“CCR”) programme, and a root cause analysis (“RCA”) as to why such steps have become necessary.

Please contact Iftkhar Ahmed or Robin Johnson on the details below for further assistance in:

  • carrying out PBRs, RCAs, CCR programmes, and enhancing operational and compliance systems, including business model and cultural change management, and/or
  • liaising with the FCA and Prudential Regulation Authority in order to explain the need for, or process of, change with the aim of mitigating the risk of – or the potential business detriment from – the appointment of a ‘skilled person’ review or the commencement of an enforcement action.

For more information contact

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