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FCA market study of add-on products provisional findings

[1]The FCA has published its provisional findings and remedies following its Market Study into sales of add-on insurance products. As an acclaimed supplier of Home Emergency Assistance ARAG was pleased to provide evidence in support of the FCA’s work.  Its report contains a number of positive messages which are reassuring to ARAG, to our agents and to our policyholders.

The FCA’s provisional findings may not immediately point to poor consumer outcomes however the FCA believes that there is a clear case for intervention because competition in the supply of add-on products is not effective.

Looking at the FCA’s provisional remedies, we support the banning of opt-out methods of sale and work towards improving price comparison websites for users. Our main concern rests on the FCA’s “sun light remedy” which we believe may have unintended and unwelcome consequences for consumers.  Publishing the amount paid out in claims as a percentage of what is received in retail premiums provides inexact guidance to consumers as it ignores the value of additional services which are enjoyed by policyholders but not reflected in external claims costs. It also fails to take into account the cost of product manufacture, compliance, claims handling and distribution and does not address the “opportunity cost” – the detriment that individuals suffer if they do not insure. This proposal is effectively  a  price control mechanism which has the potential to remove viability from the product distribution chain and lessen consumers’ access to products.

Insurers and product distributors have been invited to provide feedback before 8th April. Thereafter the FCA will consult with interested parties to draft new rules and work towards implementation in 2015. ARAG intends to be very much involved in dialogue with the FCA over the coming months as we debate how provisional remedies are likely to impact on access to and availability of products.