We are launching a discussion on a range of options for introducing a measure, or measures, of value in General Insurance markets.
In December 2012 the Financial Services Authority (FSA) launched a study into general insurance (GI) add-ons. This became our first market study in July 2013. The market study looked at the effect of the add-on mechanism in GI markets and found that competition for add-ons is not effective.
We concluded that ineffective competition led to consumers paying too much for their add-on products, often receiving poor value for money. We estimated that this resulted in an overpayment of at least £108m a year.
To address these issues we suggested four potential remedies. We have already consulted on three of the four remedies:
This paper explores a range of options for introducing a measure, or measures, of value in GI markets. These measures are not intended to give a perfect representation of value, but they can be used as indicators of value.
We are committed to introducing such measures in order to shine a light on poor value in the market place. We want to increase competition on value, and incentivise firms to improve value.
Discussion paper DP15/4 [PDF]
This paper will be of interest to any firm involved in the underwriting, sale and/or distribution of general insurance products and the wider financial services industry.
It will also be of interest to consumers who buy general insurance products. Consumers may want to consider what indicators of value they might find useful.
We are particularly interested in the views of consumer advocates to help us determine the most effective approach for our policy decisions.
Our July 2013 market study focused on five products: guaranteed asset protection (GAP) insurance, home emergency insurance, travel insurance, gadget insurance, and personal accident insurance.
We analysed product literature, pricing and management information, profitability and claims data from firms as part of the study. We also conducted quantitative and qualitative consumer research, as well as a behavioural experiment.
The market study was not the first time we raised the question of how to increase transparency in general insurance markets. In FSA Discussion Paper 13/1 we stated that “we will seek to use transparency where we believe it will help consumers make more informed choices or change consumer or firm behaviour in ways that help us achieve our objectives”. We also introduced the idea of publishing a measure of general insurance product value.
We would welcome feedback from firms, industry and consumer groups, and other stakeholders.
Please send us your comments on this Discussion Paper by 24 September 2015 via the online response form, or by writing to us at the address on page two of the paper.
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