Out-Law News 2 min. read
12 Jun 2015, 2:53 pm
From this date, a mandatory 'deferral period' will apply preventing firms from introducing GAP insurance and concluding the sale on the same day when the product is being sold in connection with a motor vehicle. Firms will also be required to give their customers, including their commercial customers, more information about the products at the point of sale.
In a final policy statement, the FCA said that it expected the new rules to lead to "better customer outcomes from more informed purchasing decisions and improved competition between add-on and standalone distribution channels".
The new rules have been drawn up in response to the FCA's 2014 general insurance market study, which was the first such study it carried out under its mandate to "promote effective competition in the interests of consumers". It is currently consulting on two other rule changes which would apply to the sale of add-on products more generally: a ban on 'opt-out' sales, such as through the use of pre-ticked boxes; and requirements for firms to provide more "appropriate and timely" information about these products at the right time in the sales process.
In a report published last July, the FCA said that the 'add-on' sale of insurance products had a "clear impact" on consumer behaviour; weakening engagement and reducing the likelihood of them shopping around. This also gave providers significant structural point of sale advantages. The FCA found that many of these customers were purchasing poor value, unnecessary products, for significantly higher prices than they would have obtained by shopping around for a standalone policy.
The FCA found that this was a particular problem in relation to GAP insurance products, which are sold to cover the cost of the difference between the actual cash value of a car and the amount still owed under a finance plan. According to its research, almost half of customers were unaware that they could have bought GAP insurance other than at the point of sale and that these customers were the least likely to shop around out of all the purchasers of add-on insurance products surveyed as part of the market study. GAP products also tended to have a low 'claims ratio', with only 10% of the amount collected in premiums paid out in claims.
According to the FCA, the introduction of a deferred opt-in period on sales of GAP insurance and prescribed information requirements will limit firms' point of sale advantage and encourage customer engagement during the purchasing process. The new rules are "effective and proportionate" and do not amount to a "point of sale ban", as some respondents to the consultation have suggested, the FCA said.
"We have considered the concerns about limiting consumer choice and customers seeking immediate cover," it said in its feedback to the consultation.
"However, our consumer research for the market study found that customers can react poorly to the add-on mechanism. We believe that our remedy enhances consumer choice by overcoming behavioural biases at the point of sale, so that customers will be aware that GAP insurance can be purchased elsewhere, will purchase in a more purposeful way having considered their options, and will shop around and benefit from lower prices," it said.
The new rules will come into force on 1 September 2015 despite concerns raised during the consultation period that this did not leave firms with enough time for staff training and other implementation measures. The FCA said that this was necessary to catch the increased number of customers purchasing in September, as vehicle registrations change at this point in the year.
The FCA is continuing to consider the case for requiring insurance providers more generally to publish their claims ratio or other value measures. It will publish a discussion paper on this issue later in the year, it said.