FSA probe triggers defence of legal expenses

The FSA, which this week announced a probe into add-ons, has been urged to think carefully before it makes any decisions over legal expenses, as it is seen as a valuable product.

Cornell Consulting founder Tony Cornell said: “Legal expenses with brokers is seemingly brought in for nothing and sold for £15. To the outside world, that would appear to be wrong. But £15 to an individual is good value.

“The fact is that if you have an accident, it gives you access to legal fees and lawyers and it is all before the event and not on a ‘no win, no fee’ basis, so it is good to have cover.

“It is available to all, and the losses of the few are borne to the many, so it’s what insurance is all about. They have to be very careful about altering the balance.”

Cornell also said that a legal expenses claim can be time-consuming for a broker in the event of a claim.

“A broker has to collect the information. They my make money on paper, and overall, but there is a reality that the unit cost is low, and the expenses are high,” he said.

The FSA has said it will focus the probe on add-on insurance in relation to larger purchases such as a car, holiday and electronic device.

But the FSA, in the annoucement yesterday, also referred back to the importance of the Retail Conduct Risk Outlook 2012 published earlier in the year.

That document, published in March, specifically refers to add-ons such as breakdown and key cover, and states its concerns that some may have little value to the customer.

The FSA is leaving the scope of the probe fairly wide, and it will almost certainly carefully scrutinse legal expenses along with breakdown, key insurance, mobile phone insurance, excess protection.

Legal expnses insurer DAS head of marketing Bob Screen, told Insurance Times that while it was difficult to see the value in some add on products, but he believed legal expenses cover would be unaffected.

“There are add-ons and there are add-ons. It’s a question as to what value they bring to the end user. In the case of legal expenses this has been proven to be a key add-on and has been for a long time,” he said.

“Our view is legal expenses provides a very good product for customers. We have no worries about legal expenses and we would draw a line between legal expenses and some other add-on products in the market.

“We have products with limits of £50,000 and £100,000 so the cover customers are getting is extensive. All the changes the government is making with LASPO just make legal expenses even more important,” Screen added.