Consumers have a much poorer understanding of motor legal expenses insurance (MLEI) than providers believe – but it is a useful product that helps consumers find specialist solicitors, a review by the Financial Conduct Authority (FCA) has concluded.
As a result of its work, the FCA has called on insurers to reconsider the basis on which MLEI is provided – particularly whether it is opt-in or opt-out – the quality of explanation of the product, and the extent of the cover provided.
Consumer research undertaken as part of the review found that while consumers have a relatively high awareness of MLEI, there is “little understanding” of what it does and the benefits it provides.
Consumers thought MLEI provided general protection in the event of litigation against them, this being their overriding concern. They were not able to distinguish between the cover provided under their motor policy – that is, protection against being sued for damages – and the MLEI policy enabling them to pursue their legal rights to recover uninsured losses from the at-fault driver and, where provided, legal representation in the event of criminal prosecution.
Further, the experience of those who had sought to use MLEI at the point of claim was very variable, while those providing cover for criminal prosecutions similarly varied in what they would pay for – one was worded in such a way that the FCA said it could be used to deny virtually any claim.
The FCA suggested that the variety of labels applied to MLEI is also “likely to fuel consumer misunderstanding”.
However, asked to indicate on a scale of 1 to 5 (5 being strongly agree) whether they agreed with the statement that ‘consumers understand MLEI’, most of the 16 insurers and intermediaries that took part in the project gave a 4, 4/5 or 5.
Concerns over the sales techniques included making it an opt-out product; a majority of providers took this approach and the FCA said consumers often lacked the confidence to override the ‘authority’ of the insurer or intermediary that MLEI was needed – and when they did try to, some websites issued alarmist warnings.
The FCA said: “We came to the view that it is hard to see opt-out selling of MLEI as consistent with good consumer protection.” It was also critical of the difficulty consumers would have to understand some insurers’ policy wording.
“Overall, we came to the conclusion that in the current market context MLEI is a product which can be useful for consumers,” it said. “It enables them to pursue their common law legal rights to recover their uninsured losses following a motor accident for which they are not at fault. There are the additional benefits, where provided in the policy, of motoring prosecution defence and access to a legal helpline. MLEI is a ‘convenience’ purchase in that it packages together these legal services upfront.
“Historically recovery of uninsured losses could often be sourced through other means, notably a CFA with a solicitor for pursuit of a personal injury claim. However, in such cases, the not-at-fault motorist would have to search out a solicitor after the accident and it could be difficult for the consumer to determine whether the solicitor was in fact a specialist in personal injury claims or not.
“In this regard another benefit of MLEI is that the legal expenses insurer performs a quality assurance role. Cases referred through them will be to specialist solicitors, which is likely to increase the chance of successful recovery.”
Benefits of MLEI that could not be found through going direct to a solicitor, it said, included pursuing personal injury claims valued below the current £1,000 small claims limit – the importance of which will increase if the limit goes up to £5,000 as the government is considering – and claims involving non-UK registered drivers involved in an accident in the UK and accidents abroad involving UK motorists. “Neither of these types of case is likely to be accepted by a solicitor under a CFA because of the unlikelihood of their costs being recovered,” the FCA said.
Simon Green, head of general insurance and protection at the FCA, said: “We have discussed our findings with insurance firms, trade associations and consumer representatives. The firms that participated in the project are changing the way MLEI is sold.
“We now want all motor insurance providers to similarly reflect on our findings. We ask firms to pay particular attention to what customers are saying about their understanding of MLEI and motor insurance in general. We will revisit this work in 2014 to assess how the market has responded.”