Insurance Extras Too Costly, Says Financial Watchdog

Insurance firms are taking advantage of customers by charging them too much for policy add-ons and failing to give them advice about rival products, says the financial services watchdog.

The Financial Conduct Authority (FCA) says an investigation revealed lack of competition in the market and poor sales information did not give customers enough details to make informed buying decisions.

The study found:

  • One in four customers buying insurance as an “add-on” were unaware they could buy the product from another provider
  • Nearly 60% of customers did not compare product features or prices
  • Nearly 40% of customers had not intended to buy add-on insurance before the day of purchase
  • Nearly 70% of customers could not remember the price of their add-on insurance three to four months later, while a fifth had forgotten making the purchase

Poor value for money

Christopher Woolard, the FCA’s director of policy, risk and research, said: “This market is not working for customers, who are not getting value for money. Firms just see these customers as cash cows and need to put them first.”

The FCA is taking action to realign the market by:

  • Customers buying GAP insurance for cars must have a cooling off period to confirm they actually want the add-on
  • Pre-ticked boxes on insurance application forms will be scrapped
  • Making sure standalone add-on policies are better available through online comparison sites
  • Forcing firms to publish claims information so customers can see if the insurance add-on pays out

Warnings about bogus advisers

The FCA has also issued these warnings about bogus firms posing as regulated financial advisers:

Dealing with an unregulated firm

If you buy shares, save money or invest with an unregulated firm, you lose any protection offered by the Financial Ombudsman and the Financial Services Compensation Scheme. Broadly, you have no independent place to complain if the deal goes wrong and are unlikely to win any compensation.

Checking if a firm is regulated

Go to the Financial Services Register to check if a firm is regulated in the UK.

Reporting a suspected bogus adviser

Find out how to report unauthorised advisers on the FCA web site

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