Selling ‘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 these 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 the transparency and comparability of general insurance products, and have proposed rules and guidance on:
- Banning opt-out selling
- Improving product information provision in relation to add-ons
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’ should not be confused with ‘additional optional extras’ which are always bought as part of a primary product, and are not 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 are still subject to the FCA changes and the transitional provisions that sit alongside them.
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 is 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 is not pushing you down a route that will lead to your sales process being questioned. Seek assurances that add-ons and optional extras are not being pre-selected within the system. Remember, the compliance responsibility lies with you, not the system provider.
Review Renewals - If your customers have previously purchased add-ons or 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.
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.
Customer Information – As previously, you should provide customers with enough information during the sales process to enable them to make an informed decision.
More information is available on the FCA website from http://www.fca.org.uk/news/ps15-22-general-insurance-add-ons-market-study-remedies