FCA: firms must address "alarmist and misleading" motor legal expenses insurance promotions

Publishing the results of its 'thematic review' of the MLEI market (32-page / 1.2MB PDF), the Financial Conduct Authority (FCA) said that some firms displayed "alarmist and misleading" messages to consumers who tried to opt out of the product if they were purchasing it online.

"MLEI's complexity makes it difficult for customers to understand," the report said. "When it is sold as an add-on this is typically towards the end of a lengthy process devoted to the core motor policy. Our consumer research showed that, while people have a high level of awareness of MLEI, they do not understand it."

MLEI insures consumers against their legal costs following a motor accident for which they were not at fault. It will generally enable them to recover their uninsured losses from the at-fault driver, and some policies will also provide legal representation or access to a legal helpline for drivers being prosecuted for a motoring-related criminal offence.

The report is the first to be published by the FCA as part of its more general work involving insurance add-ons. The findings from this review will be considered as part of that study, and as part of the regulator's developing approach to general insurance add-ons, it said.

The FCA said that firms should review their current policies on the basis on which MLEI is provided, the quality of explanation of the product at "all stages of the customer journey" and the extent of the cover provided. It will assess how the market has responded next year, it said.

Industry body the Association of British Insurers (ABI) said that its members had already started to make the recommended changes after working with the FCA.

"The FCA has rightly recognised the importance of MLEI as a product and that it is one consumers value," said James Dalton, the ABI's head of motor insurance. "As an industry we are committed to improving our offering to consumers, so the FCA's recommendations to improve the clarity of the wording of some MLEI policies comes as a useful reminder that we still have some work to do."

In its report, the FCA said that MLEI was usually sold on an 'opt-out' basis to consumers shopping for a motor policy, meaning that it tended to be preselected by the firm rather than actively selected by the consumer. Other common 'add-ons' were generally sold on an 'opt-in' basis, it said. The FCA said that it was "hard" to see opt-out selling of the product as "consistent with good consumer protection" given this background.

"The information provided by firms showed that some consumers do have the confidence to de-select MLEI when it has been pre-selected for them by a firm," the report said. "However, it remains likely - as behavioural economics would suggest - that some consumers do not have the confidence to override the 'authority' of an insurance company or intermediary that has decided that the consumer needs MLEI."

"The pop-up messages that confront the consumer when they try to deselect MLEI compound the problem of the consumer not feeling confident to override what the insurance company or intermediary has 'chosen' for them ... These messages play on consumers' concerns - highlighted during our consumer research – of being involved in expensive litigation against them," the report said.

According to the FCA's research, consumers were twice as likely to purchase MLEI as part of a motor insurance policy where it was sold on an opt-out basis. Among the online alerts highlighted by the regulator as examples of potential bad practice was one that said "Could you really afford NOT to select motor Legal Expenses?", which indicated that consumers could lose up to £100,000 by not including it in their policy.

The Competition Commission is currently carrying out its own investigation into the private motor insurance market, following a referral from consumer protection regulator the Office of Fair Trading (OFT) last year. The OFT had previously found that some insurers may be artificially driving up the cost of car insurance premiums because they are charging more than is due for dealing with driver claims in the aftermath of accidents.