FCA confirms market study into general insurance "add-ons"

The Financial Conduct Authority (FCA) has confirmed that it is undertaking its first market study into the practice of selling insurance "add-ons" with purchases like cars or mobile phones.

As a key objective of the FCA, the study will look at whether there is effective competition for add-on products, and if not, why not.

The FCA’s new competition remit is one of the most significant changes in its objectives as a regulator.  It means that the regulator will not wait for problems to materialise but look to promote competition. This follows work commenced by the Financial Services Authority last year where concern was expressed that consumers did not fully understand what these insurance products covered and whether they represented value for money.

To be clear on the focus of this market study, the FCA has published its theories of harm, which look at why consumers may be experiencing poor outcomes in relation to add-on products. This can happen for a number of reasons - such as the moment when consumers purchase add-ons - which could limit how far they explore alternatives or base a decision on price and quality.

For example if someone has just purchased a valuable item, they may feel the need to purchase cover immediately or base their decision on the price of the add-on compared to the price of the product just bought.

The FCA will also look at whether there are unnecessary barriers preventing new firms from entering a market or preventing smaller ones from expanding, both of which can limit competition.

Commenting on the study Martin Wheatley said:

“This is an important piece of work. This is the first study that we are undertaking specifically to examine the state of competition in a market.

"We’ve called for evidence and approached a number of firms that supply add-on products for information. Based on this early work we are publishing today our theories of harm that we are testing.

"We are focusing closely on testing whether poor outcomes in add-on sales could reflect particular consumer behavioural traits and firms’ responses to them.

“In future these market studies will form the mainstay of how we gather evidence to identify competition problems, and to identify where the FCA can intervene to promote better outcomes for consumers.”

The FCA is looking at GAP insurance, home emergency, gadget, travel and personal accident and accident cash plans as representative of the market.

Interested parties have until September 10th to submit further views and evidence.

Notes to Editors

  1. Martin Wheatley was speaking at the ABI Biennial Conference in London. Read the full text of the speech.
  2. The call for evidence.
  3. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  5. Find out more information about the FCA, as well as how it is different to the PRA.