Out-Law News 2 min. read
06 Oct 2015, 10:33 am
Its final rules, which do not differ significantly from those it consulted on in March, will apply to any add-on sales of regulated or unregulated products offered alongside financial products; for example payment protection products, legal expenses cover sold with home insurance or breakdown cover sold with motor insurance. New guidance which will enable firms to give consumers information about add-on products at the right time in the sales process takes effect immediately, the FCA said.
The changes have been introduced in response to the FCA's insurance add-on market study last year. During this work, the regulator found that consumers often ended up purchasing poor value, unnecessary add-on insurance products when these were selected for them by default.
"The ban on opt-out selling is designed to improve competition in the market around add-on sales and prevent the exploitation of customer biases, which can lead to customers purchasing products they do not need and overpaying for these products," the FCA said in its final policy statement. "The market study found that customers were overpaying for add-ons by as much as £108m to £200m per year."
The accompanying guidance on information provision would "encourage more informed and active decision-making by customers", the FCA said.
The FCA used its final policy statement to clarify its reasons behind the ban on opt-out selling, and the circumstances in which it would apply. It said that the ban was aimed at preventing firms from "defaulting customers into products for which they may or will be charged", regardless of whether these additional products were financial in nature. This included "optional extras", for example separate baggage cover on a travel policy or accidental damage on a home insurance policy; but not setting an excess or sum-insured, it said.
Firms will not have to cancel the contracts of customers that were sold products on an opt-out basis before the rules came into force at the point of renewal, according to the policy statement. Instead, they will be required to take "reasonable steps" to make sure that these customers are aware of the add-on products, regardless of how long ago these were purchased, at the first renewal point after the changes come into force. Firms should not make it "unduly difficult for customers to elect not to renew these add-ons", the FCA said.
Although the guidance on providing appropriate and timely information to customers will take effect immediately, the FCA said that firms would have until 30 September 2016 to "make the necessary changes to their sales journey". Changes to guidance in the FCA handbook will come into force on 1 April 2016 and make it clearer to firms that their duty to provide appropriate and timely information to consumers applies regardless of whether the products sold are add-on or standalone products, it said.
The FCA intends to consult on measures to help consumers make an informed decision when renewing insurance policies more generally later in the year, it said. It will also consult on its preferred method of introducing a 'value measure' to insurance product marketing later this year, once it has considered all the feedback to a discussion paper on the subject which it published in June, it said.