This report sets out our final findings from our market study on the sale of general insurance add-ons. This follows on from our provisional findings report in March 2014, and takes account of the consultation responses we received. The study was launched by the FSA in December 2012 and was confirmed as the FCA’s first market study in July 2013.
A wide range of general insurance products are sold alongside or on the back of ‘primary products’.
These primary products may be financial services – e.g. home insurance – or they may be non-financial products – e.g. motor vehicles, mobile phones or services such as passenger flights.
The insurance products sold alongside primary products are known as ‘add-ons’.
This was the FCA’s first market study. Our objective was to test whether competition in the markets for add-ons is effective or not, and if not, to understand why this might be so.
We analysed a range of information from insurers and intermediaries, including product literature and data relating to sales, pricing, profitability and claims.
We used behavioural economics as a key tool during the study. We carried out both quantitative and qualitative consumer research, and undertook an innovative behavioural experiment in which we tested consumers’ reactions to the add-on mechanism in a simulated environment.
The final report can be accessed from the link below. Links to more detail on individual pieces of analysis and research carried out earlier in our study can be found at the end of this page.
This will interest:
Our study confirmed that selling a product as an add-on often lead to consumers purchasing products that were of poor value and not what they needed. We also found that the value of general insurance products is not always clear.
We remain committed to strengthening the transparency and comparability of the value of general insurance products and have proposed to impose a requirement on firms to publish claims ratios as a measure of the value of a product.
Further to our consultation on the GAP insurance market remedy (CP14/29), we have issued our Policy Statement (PS15/13) and final rules to improve competition in this market. Our final rules introduce a deferred opt-in for customers when add-on GAP insurance is sold as part of buying a vehicle and improved information about shopping around.
We have consulted on two remedies designed to address some of the issues we found with the add-on mechanism. We proposed new rules and guidance on:
We published DP15/4 to discuss our options for publishing value measures in the insurance market, to increase transparency in this area and encourage competition on value. We have committed to carrying out a pilot of this publication, launching in Summer 2016 (see FS16/1 for more information).
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