We are launching a discussion on a range of options for introducing a measure, or measures, of value in General Insurance markets.
Why are we seeking views on this?
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:
- imposing a deferred opt-in period in GAP sales and increased information to aid shopping around – consultation paper published in December 2014 and policy statement published in June 2015
- banning opt-out selling – consultation paper published in March 2015
- improving information provision for general insurance add-ons – consultation paper published in March 2015
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]
Who is this discussion paper aimed at?
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.
What is the background to this?
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.
What are the next steps?
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.
Want to find out more?
- MS14/1: General insurance add-on products: Provisional findings of market study and proposed remedies
- MS14/1: General insurance add-on products: Provisional findings of market study and proposed remedies: Annex B: Methodology and analysis of firm data
- Consumer research reports:
- Occasional Paper No. 3: How does selling insurance as an add-on affect consumer decisions?
- CP14/29: Guaranteed Asset Protection insurance: a competition remedy
- CP15/13: General Insurance Add-ons Market Study – Proposed Remedies: banning opt-out selling and supporting informed decision-making for add-on buyers
- Promoting effective competition