Insurance 'Add-Ons' Face Review
Purchasing holidays, cars and gadgets is all well and good. However, a lot of these purchases come with compulsory insurance policies attached to them. The city regulator is beginning to review these ‘add-on’ policies in the hopes of giving consumers a better deal. The market for these ‘add-on’ insurance packages comes to a total of £4 billion and regulators have been looking at them since December 2012. The Financial Conduct Authority is setting out to review the lack of choice and competition – are customers aware that they can shop around at the point of sale? This is somewhat similar to the mis-selling of PPI – borrowers didn't know that they could get their cover from elsewhere.
The regulator is going to get feedback on the issue from the industry and the consumers. When we purchase a product, we are told about available insurance cover for it but rarely told that we can shop around to choose a different insurer. The Financial Conduct Authority (FCA) is looking at whether these policies are good value for money and if consumers even know what they are getting with their add-on insurance. This investigation is an outcome of the recent controversy over mobile phone insurance being ridiculously hard to claim from. One mobile phone insurance firm was fined £2.8m for failing to deliver on their mobile insurance policies.
In related news, a watchdog has been investigating a number of insurers over renewal ‘overcharging’. The city regulator has started investigating insurance companies that are overcharging customers when they renew their house and car insurance policies. The FCA points out that automatically renewing policies can treat customers unfairly – loyal customers have been getting charged much more than new customers who are being attracted by low costs for their first year of cover. Many customers choose to automatically renew their policies instead of shopping around. This can be dangerous: One 83 year old BBC Money Box listener saw the cost of her home insurance rise to £850 with the same policy being offered to new customers for as little as £200.
The Chairman of the Commons Treasury Committee said “Such practices appear to penalise long-term loyalty and are to the detriment of those less able to access price comparison resources, particularly the elderly.” Mr Wheatley from the watchdog confirmed that they are investigating insurers who are taking advantage of customers who aren’t aware that they can shop around. Mr Wheatley said: “We will look at issues like premium charging in a new light. In particular we will be interested in whether firms are taking advantage of consumers who simply accept what they are offered.”
James Savery, 10 July 2013