From April 1st the Financial Conduct Authority (FCA) is introducing new rules for selling add-ons which will have an impact on the way you work. Here we provide you with everything you need to know to 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 often leads to customers purchasing products that were of poor value and not what they needed. The FCA also found that the value of general insurance products is not always clear.
With an aim of strengthening the transparency and comparability of the value of general insurance products the FCA have proposed rules and guidance on:
- banning opt-out selling, and
- improving product information provision in relation to general insurance add-ons.
What is an add-on?
The FCA has defined an add-on as any type of good, service or right purchased or provided with, or alongside a, primary product. An add-on is a policy in its own right and can often be purchased alongside a primary product or standalone product. Legal expenses cover is an example of an add-on under RSA’s Clearchoice home insurance policy.
Add-ons should not be confused with additional optional extras (AOEs) which are always bought alongside a primary product and are not policies in their own right. Accidental damage cover is an example of an AOE under RSA’s Clearchoice home insurance policy.
While AOEs such as accidental damage cover do not meet the full definition of a true add-on, they are subject to the FCA changes detailed below and the transitional provisions that sit alongside it.
What are the changes to selling add-ons?
- The selling of add-ons and AOEs can no longer be on an opt-out basis, your customers must actively choose what they want to purchase.
- Opt-out can be used if an add-on or AOE is genuinely free and has no cost attached both at inception and at renewal - if you intend to apply a charge at renewal your customer must opt-in to the purchase.
- Where products can’t be purchased separately (known as an ‘unbreakable bundle’) you can still sell them as a package but you must do this on an opt-in basis.
What you need to do:
- Add-ons and AOEs should no longer be pre-selected when your customers purchase insurance - this includes all online customer journey screens.
- You should provide customers with enough information during the sales process to enable them to make an informed decision.
- If your customers have previously purchased add-ons or AOEs on an opt-out basis, you must advise your customers at renewal that these are optional and can be removed if they wish. You only need to inform your customers of this once, not after every renewal unless any changes to an add-on have been made.
- You need to gain consent from your customers before payment is taken for any add-ons or AOEs that used to be free, but are now charged for.
Oak Home Insurance:
Our Oak home insurance policy automatically includes Home Emergency Services and Legal Protection cover for UK resident individuals occupying and insuring their main residence. There is no option to exclude these sections and no identifiable premium attributable to their inclusion.
These covers are provided by a carefully selected partner, ARAG, who administer the services using underwriting capacity from Brit Syndicate. We recommend that you and your customers should familiarise yourself with these before buying or renewing a policy with Oak.
Oak’s annual travel policy is an add-on that can only be purchased with our Oak home insurance product and is subject to the FCA changes detailed above. Our schedules clearly state both the home insurance premium and the annual travel premium separately for transparency for you and your customers.
For more information please visit the FCA website.