Out-Law News 2 min. read

Banks must check whether customers are eligible for packaged insurance policies before sale


Banks and building societies will have to inform customers whether they will be eligible to claim under any insurance policies bundled with a bank account from next year, the financial services regulator has announced.

The new rules follow last year's consultation by the Financial Services Authority (FSA) on so-called 'packaged' bank accounts. The regulator has also published a further consultation (44-page / 642KB PDF) on additional issues raised by the accounts, which it says are now held by one in five customers.

Packaged accounts are current accounts bundled with a range of other products such as travel or mobile phone insurance, mp3 downloads and discounts on tickets for events; in many cases in exchange for a monthly fee. They can also include preferential terms for other financial services, such as overdrafts or mortgages.

"These products are often referred to as upgraded accounts but if you end up paying for an element you can't claim on, it's money down the drain," the FSA's director of policy, Sheila Nicoll, said. "We are closely monitoring the promotion of packaged bank accounts and the new rules will make sure customers know what they're buying and that they can rely on the product or have the limitations explained before buying."

From 31 March 2013 sales advisers will have to check whether the customer is eligible to claim under each bundled policy before making a sale, and must share that information with the customer. If the adviser intends to recommend a particular policy within the package the adviser must establish whether each policy is suitable for the customer and alert them if some are not.

For example, the FSA said, in order to comply with the new rules a bank selling travel insurance as part of a packaged account must first establish whether the customer has any pre-existing medical conditions and whether this will affect the customer's ability to claim. The customer can then, the regulator said, "decide whether the cover meets their needs".

Banks must also provide customers with packaged accounts with an annual eligibility statement, setting out the requirements in order for a customer to claim each of the benefits under each policy included in the package. This should "prompt customers to check whether their circumstances have changed and whether the policies continue to meet their needs," the FSA said.

Annual statements could, the regulator said, be sent to customers as a separate mailing to give them added prominence. Its consultation on the proposal runs until 29 October. It could also tell banks and building societies to "proactively" tell customers who are about to trigger the age limit for claiming on a travel insurance element within a package deal, and has warned that it is "monitoring" the promotion of packaged accounts which advertise monthly costs alongside annual benefits.

"Bundling many features together with a bank account makes it complicated for consumers to understand," the regulator said in its consultation. "We want to ensure that our rules provide the same level of protection for consumers buying insurance as part of a packaged bank account as those buying it on a standalone basis. The key risk we found was that consumers may think they are covered by each policy, but later find they are ineligible to claim or that the policy is unsuitable in some other way."

Peter Vicary-Smith, chief executive of consumer rights organisation Which?, described the policy as a "welcome first step" which would help stop people paying over £300 a year in some cases for benefits they may never need.

"We want to see greater transparency from the banks so their customers can see clearly what is included in a policy and the costs so they can easily judge whether it is the right policy for them," he said. "The regulator must also be a proactive watchdog for consumers and prevent banks linking staff bonuses to the sale of these products; the mis-selling scandals of recent years must never be repeated."

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