This report sets out the provisional findings of our market study into general insurance add-on products. 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 is 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 findings are set out in our overall work. More detail on individual pieces of analysis and research is provided in the research reports.
Consumer research reports:
This will interest:
We found that competition in the markets for general insurance add-ons is not effective and that this can lead to poor consumer outcomes. Consumers can be significantly overpaying when they buy products as add-ons.
We believe that there is a clear case for us to intervene in respect of the supply of general insurance add-ons, and this report also outlines a number of proposed remedies.
Our remedies will be subject to cost-benefit analysis and formal consultation. We aim to publish our consultation on remedies before the end of 2014.
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