FCA review into mobile phone insurance finds examples of poor product design, unclear terms, and inadequate claims and complaints handling

The Financial Conduct Authority (FCA) has published a review focusing on the way mobile phone insurance firms design products and handle claims from customers that have lost or damaged their phone, or had it stolen.

Mobile phone insurance can be useful, but the FCA found some examples of poor practice in a number of areas: elements of the products were not designed to meet customers’ needs, some terms and conditions were unclear and unfair, and there were examples of poor claims and complaints handling.

Mobile phones are increasingly central to everyday life, so it is important that insurance policies provide the level of protection that they promise, and claims processes are fair. Claiming should not be difficult, and terms and conditions should not be so unclear that it is virtually impossible – in some cases - to make a successful claim.

The FCA reviewed the practices of nine firms that have a majority share of the mobile phone insurance market. The aim was to explore how insurance policies are designed, examine terms and conditions (and whether they are clear and fair), and investigate how claims are handled in practice.

The FCA’s findings include:

  • some firms were not always thinking through why high numbers of claims were being rejected, and therefore not feeding that back into their product design process;
  • products were not always designed to meet the needs of consumers;
  • the majority of policies promised to cover loss, but in practice often did not cover instances where the customer accidentally leaves their phone somewhere;
  • descriptions of what is covered and what is not were too broad and ambiguous (for example: ‘a public place’, which can be vague and gives firms scope to reject claims – e.g. where the phone is lost in a hotel or taxi);
  • examples of inadequate claims and complaints handling.

The review also contains real-life examples of firms not treating their customers fairly. In one case, a claim was declined because the customer knew where they’d accidentally left their phone; while in another a claimant was rejected because she left her phone in a hotel room, which was deemed to be a public place as soon as she checked out and therefore was excluded from cover.

The FCA has presented the findings to the firms that took part in the review. As a result these firms are already making changes that include:

  • changing terms so they are clear about when and where consumers are covered;
  • removing the ‘two stage’ claims process (where a claim might be initially rejected but where the customer is persistent and complains this is then sometimes overturned);
  • handling claims more promptly; and
  • increasing the amount of time customers have to register a claim.

In addition, in July the FCA will impose a significant fine on one firm in this market for poor handling of complaints.

Clive Adamson, the FCA’s director of supervision, commented:

“With mobile phones now essential to our lives - and mobile phone insurance often many young people’s first foray into insurance - it is important that insurance policies provide the level of protection that they promise, and claims processes are fair.

“What this review shows is that sometimes there is a gap between what the customer thinks they are getting, and what they are really getting. Closing this gap will lead to greater trust and confidence. 

“We have begun communicating the findings to the firms that took part in the review and they are making improvements. Mobile phone insurers need to continue in this vein and show their customers that they are putting them at the heart of their business models, and offering everyday insurance products that do what they say on the tin.”

The FCA’s predecessor, the Financial Services Authority, began this piece of work after it became concerned that some customers were struggling to make successful claims on their insurance. The review began in response to media reports and concerns from the Financial Ombudsman Service about unfair practices in this market.

The publishing of this review is part of a series of FCA reviews into everyday insurance products. The FCA has already published a review of motor legal expenses insurance and is currently also looking into how insurers use private investigators and how firms handle claims.

Consumers that already have mobile phone insurance, or are thinking about buying a policy, should:

  • check whether they are already covered, for example via a packaged bank account;
  • check what the policy covers and the policy excess; and
  • complain if they are not satisfied.

If consumers are unsure about anything to do with their insurance policy, or don’t understand some of the small print, they should ask the insurer to explain.

In the event of needing to complain the first step is to make a complaint to the firm named on the policy documents. If they are not happy with that response they can then take the complaint to the free and independent Financial Ombudsman Service.

Mobile phone insurance market snapshot

  • Ofcom figures show that 92% of adults personally own or use a mobile phone;
  • The product is sold widely with over 10 million policies in existence; and
  • Recent Financial Ombudsman Service complaints data shows that this has one of the highest uphold rates of any product they deal with.

Notes for editors

1. The mobile phone insurance review: TR13/2 Mobile phone insurance – ensuring a fair deal for consumers

4. 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).

5. 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.

6. Find out more information about the FCA, as well as how it is different to the PRA.