The Financial Conduct Authority (FCA) has begun a study into general insurance add-on products with an appeal for evidence of competition in the marketplace.
GAP (guaranteed asset protection) insurance sold by the motor industry is one product under scrutiny. Others include home emergency insurance, gadget, travel and personal accident cover.
The market study will consider evidence from companies and individuals and look at the nature of competition in these markets, in particular whether these products represent good value for money and whether consumers understand what they are getting with their policy.
The FCA’s call for evidence, to be submitted to FCAGIaddfirstname.lastname@example.org before September 10, reveals it will consider whether prices are excessive for a given quality, whether the quality is what consumers reasonably expect, any profitability differentiation between add-on and standalone sales for underwriters and distributors, and whether the consumer actively considers alternatives.
A key focus of the study is to investigate what impact add-ons have on consumer behaviour and expectations, how firms respond to those, and whether poor market outcomes arise as a result.
Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), told the Association of British Insurers (ABI) Biennial Conference: “Our new competition duty is the single most significant change in our objectives as a regulator. It means that we don’t just wait for problems before we try to promote competition in the markets we regulate.
“We have our first market study underway looking at general insurance add-ons. We’ve called for evidence and approached a number of firms in the market for information. We are testing whether poor outcomes in add-on sales could reflect particular consumer behavioural traits and firms’ responses to them.”
“One of the questions I was most frequently asked 101 days ago was: ‘Is the FCA going to be genuinely different from the FSA?’. We understand why people reserved judgement - the FSA needed to change.
“100 days later I think we are taking steps in the right direction. The FCA is in many areas a very different animal from the FSA.
“We’re not just asking: Is this product compliant? Does it tick every legal box? But actually: is the outcome good? Is the market competitive? And is fair treatment of consumers designed into products and culture?”
The results of the FCA's findings will be reported in 2014.