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The risks involved in selling insurance alongside other products

  • United Kingdom
  • Retail

19-11-2013

Insurance is now sold alongside a wide range of other products, from cars to mobile devices to passenger flights to white goods.

In September 2013 the deadline closed for responses to the thematic review into General Insurance “Add-Ons” being conducted by the Financial Conduct Authority (“FCA”). 

General Insurance “Add-Ons” are the insurance products that are sold alongside other products.  The other products may be insurance products, but they may also be the products listed above. Typical risks covered include appliance breakdown, damage or failure, damage to motor vehicles or the sustaining of injury or illness.

Another PPI Scandal?

The FCA’s published material suggests a wide range of businesses involved in selling such “Add-On” insurance products could potentially face issues with the products they sell and how they sell them. The issues that may be raised are similar to those raised by payment protection insurance (PPI), in that the risk of regulatory failings and liabilities potentially arise from both the extent of cover provided by such products and they way in which they are sold. However, the issues here are potentially more complex, as they include how the “Add On” product works alongside existing insurance that the insured may have.

Regardless of the thematic review, the FCA has identified various sales practices, and governance, risk management and compliance controls, which it regards as potentially inadequate, in particular in the context of non-advised face-to-face or telephone sales, including:

  • the scripts for sales needing 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;
  • 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 wary of remuneration systems which may allow non-compliant sales to be part of incentive schemes.

So what should retailers do?

Retailers need to subject their systems for the sale of insurance “Add-Ons” to stringent scrutiny to ensure that customers are treated fairly and that the product is properly explained. If an audit of their systems results in adverse findings, regulated retailers need to consider undertaking a “Past Business Review” (or a PBR) – an example would be market research on the extent to which customers have truly understood the insurance cover they have bought.  If it proves necessary, retailers may have to undertake a “Customer Contact and Remediation” programme (or a CCR) to deal with any miss-selling issues. Even Appointed Representatives need to consider their position carefully.

The Eversheds Insurance Group has been at the forefront of regulatory investigations in this area.  

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