Consumers across the UK are being overcharged by over £200 million each year, due to financial institutions attaching hidden and unnecessary insurance costs to products taken out, the Financial Conduct Authority (FCA) has identified.
The FCA undertook a comprehensive investigation of the insurance industry, thought to worth over £1 billion, and found that a multitude of individuals who purchased new vehicles, mobile products and other home goods were mis-sold insurance that was neither clearly specified to them nor necessary for them to have at all.
They have now urged policymakers to implement new regulation that will prevent all insurance providers from automatically attaching insurance products at the point of sale, and also called for the introduction of compulsory data publication from insurance providers, that will clearly display the low value for money that certain packages offer.
The FCAís firm and somewhat drastic proposals will be welcomed by consumers, who have long been subjected to hidden insurance premiums that they simply do not require.
In particular, consumers who make purchases online have been the most detrimentally affected by unnecessary insurance products. Those who pay their travel expenses online have been identified as a particularly exploited group, as they are automatically opted in to travel insurance, which they must manually opt out of. Though this only usually amounts to a few pounds, it is fundamentally unnecessary for most, and amounts to a lot if you are a frequent traveller.
"There's a clear case for us to intervene," said Christopher Woolard, director of policy, risk and research at the FCA.
"Competition in this market is not working well and many consumers are simply not getting value for money. Firms must start putting consumers first and stop seeing them as pound signs."
ëGood to seeí
The FCA first begun its investigation into the insurance industry in July 2013, and shockingly found that around 20% of customers were not even aware that they had paid extra on purchases due to the automatic add-on of an insurance product.
They also found that levels of competition within the industry were poor, and as such over 50% of consumers failed to change their provider for certain products, meaning that they continued to pay the unnecessary insurance premiums on their purchases.
The worst offending policies that were initially identified were the guaranteed asset protection, which grants consumers the somewhat hollow ability to receive the difference between the amount they spent on a car, and the amount offered by an insurer in the future. Many people were found to have taken this policy out when purchasing a new car, but alarmingly only 10% of people claimed for mis-sale between 2008 and 2012.
The same was found for add-on personal accident insurance, where around 8% of people claimed for mis-sale, which is substantially smaller than the level of claims made for more mainstream and household based insurance premiums such as PPI.
The FCA has called for all insurance products to require written consent from the customer before being attached to purchases, and boxes to be placed onto contract forms that clearly display what the consumer is signing up for.
Thus far, the FCA have refused to set a date for when consumers will see a ban on automatic insurance attachments up to the point of sale, but highlighted that a formal consultation procedure is set to run up until 8th April, after which time further developments will be made public.
Richard Lloyd, executive director of consumer organisation Which?, praised the FCAís strong and forceful stance, citing that it is necessary in order to finally bring some order into the insurance industry.
He said: "It's good to see the Financial Conduct Authority cracking down on poor-value insurance add-ons, and helping to prevent consumers being misled or caught out by signing up for products they don't need.
"We want greater price transparency across the insurance market, including a requirement on providers to put last year's premium on renewal notices, so that consumers can find the best deal for them."