Selling General Insurance ‘add-ons’ : What you need to know
From April 1st 2016 the Financial Conduct Authority (FCA) introduces new rules for selling ‘add-ons’, which will have an impact on the way you work. Here we provide you with some guidance to help you understand the new rules:
Why is the FCA making changes to the selling of ‘add-ons’?
A recent study by the FCA confirmed that selling a product as an ‘add-on’ can lead to customers purchasing products that are of poor value, and not what they needed. The FCA also found that the overall value of general insurance products is not always clear. They want to improve transparency and comparability in this area, and have proposed rules and guidance on:
- Banning opt-out selling
- Improving the provision of product information
What is an ‘add-on’?
The FCA has defined an ‘add-on’ as any type of goods, services or rights purchased or provided with, or alongside, a primary product. An ‘add-on’ is a policy in its own right, and can often be purchased on a standalone basis, as well as alongside a primary product. Legal Expenses is an example of a product which is often available as an ‘add-on’ to home insurance policies.
‘Add-ons’ shouldn’t be confused with ‘additional optional extras’ which are always bought as part of a primary product, and aren’t policies in their own right. Accidental damage cover is an example of an ‘additional optional extra’ under a home insurance policy.
Whilst ‘additional optional extras’ do not meet the full definition of a true ‘add-on’, they’re still subject to the FCA changes.
What are the changes to selling ‘add-ons’ and ‘additional optional extras’?
No ‘Opt-out’ selling – Where there’s a cost involved (at inception or at renewal), then there can be no assumed sale. Customers must actively opt-in to what they want to purchase. Opt-out will still be allowed when the cover involved is genuinely and permanently cost-free.
‘Unbreakable Bundles’ - Where a product includes other products which can’t be purchased separately (known as an ‘unbreakable bundle’) it can still be sold as a package, but the customer must opt-in to each of the included products. You should also provide a comparative price and cover using a policy that’s available as a stand-alone policy ie. without the additional bundled cover.
What you need to do
Check Your System Provider(s) – Ensure that your GI partner’s quotation system isn’t pushing you down a route that will lead to your sales process being questioned. Seek assurances that ‘add-ons ‘and ‘additional optional extras’ are not being pre-selected within the system. Remember, the compliance responsibility lies with you, not the system provider.
Simplybiz’s GeniusGI system doesn’t have, and has never had, any products with ‘add-ons’, only ‘additional optional extras’Review Renewals - If your customers have previously purchased ‘add-ons’ or ‘additional optional extras’ on an opt-out basis, you must advise them at renewal that these are optional and can be removed if they wish. You only need to inform your customers of this once.
Again, no problems with ‘add-ons’, and we’ll be amending our renewal documentation to remind you about ‘additional optional extras’Previously ‘Free’ but now ‘Charged’ – If a previously cost-free ‘add-on’ or ‘optional extra’ is to now incur a cost, you must gain consent from the customers before payment is taken.
Yet again, an all-clear with GeniusGI! We’ve never had ‘add-ons’ or previously free ‘additional optional extras’.Customer Information – As previously, you should provide customers with enough information during the sales process to enable them to make an informed decision.
For help, log-in to GeniusGI, click on ‘Guides’, and see the compliance-approved ‘Sales process for General Insurance’ document
More information is available on the FCA website from http://www.fca.org.uk/news/ps15-22-general-insurance-add-ons-market-study-remedies