This report sets out our final findings from our market study on the sale of general insurance add-ons. This follows on from our provisional findings report in March 2014, and takes account of the consultation responses we received. The study was launched by the FSA in December 2012 and was confirmed as the FCA’s first market study in July 2013.
What are GI add-on products?
A wide range of general insurance products are sold alongside or on the back of ‘primary products’.
These primary products may be financial services – e.g. home insurance – or they may be non-financial products – e.g. motor vehicles, mobile phones or services such as passenger flights.
The insurance products sold alongside primary products are known as ‘add-ons’.
What did we do?
This was the FCA’s first market study. Our objective was to test whether competition in the markets for add-ons is effective or not, and if not, to understand why this might be so.
We analysed a range of information from insurers and intermediaries, including product literature and data relating to sales, pricing, profitability and claims.
We used behavioural economics as a key tool during the study. We carried out both quantitative and qualitative consumer research, and undertook an innovative behavioural experiment in which we tested consumers’ reactions to the add-on mechanism in a simulated environment.
The final report can be accessed from the link below. Links to more detail on individual pieces of analysis and research carried out earlier in our study can be found at the end of this page.
MS14/1: General Insurance Add-Ons: Final Report – Confirmed Findings of the Market Study[1]
Who should read this paper?
This will interest:
- firms that sell general insurance add-on products or are considering selling these products
- consumer organisations
- any consumers who have bought or are thinking of buying these products
- anyone interested in the FCA’s approach to advancing its new competition objective and what market studies look like
What were our findings?
Our study confirmed that selling a product as an add-on often lead to consumers purchasing products that were of poor value and not what they needed. We also found that the value of general insurance products is not always clear.
We remain committed to strengthening the transparency and comparability of the value of general insurance products and have proposed to impose a requirement on firms to publish claims ratios as a measure of the value of a product.
What are the next steps?
Further to our consultation on the GAP insurance market remedy[2] (CP14/29), we have issued our Policy Statement (PS15/13)[3] and final rules to improve competition in this market. Our final rules introduce a deferred opt-in for customers when add-on GAP insurance is sold as part of buying a vehicle and improved information about shopping around.
We have consulted on two remedies[4] designed to address some of the issues we found with the add-on mechanism. We proposed new rules and guidance on:
- a ban on opt-out selling, and
- improving product information in relation to general insurance add-ons
We issued our policy statement[5] and final rules on these initiatives in September 2016 and have published case studies[6] to help firms understand the application of the rules and guidance.
We published DP15/4[7] to discuss our options for publishing value measures in the insurance market, to increase transparency in this area and encourage competition on value. We have committed to carrying out a pilot of this publication, launching in Summer 2016 (see FS16/1[8] for more information).
How can I find out more?
- MS14/1: General insurance add-on products: Provisional findings of market study and proposed remedies[9]
- MS14/1: General insurance add-on products: Provisional findings of market study and proposed remedies: Annex B: Methodology and analysis of firm data[10]
- Consumer research reports:
- Qualitative consumer research report[11] (The Development Team)
- Quantitative consumer research report[12] (Harris Interactive)
- Experimental consumer research report[13] (London Economics)
- Occasional Paper No. 3: How does selling insurance as an add-on affect consumer decisions?[14]
- CP14/29: Guaranteed Asset Protection insurance: a competition remedy[2]
- CP15/13: General Insurance Add-ons Market Study – Proposed Remedies: banning opt-out selling and supporting informed decision-making for add-on buyers [4]
- Promoting effective competition