FCA has the balance right on legal cover

Behavioural economics - have you heard of it? It’s the big idea of our times, capturing the attention of governments and financial regulators. It is the study of why humans make decisions, and new Financial Conduct Authority boss Martin Wheatley is sold on the idea big time.

Poor decision-making - the idea that people are not scientific when making decisions - is one of the central principles of behavioural economics. The FCA believes the sale of motor legal expenses insurance is a classic example of this. Releasing the findings of its thematic review, the FCA wants legal expenses insurers and brokers to give customers clear choices, written in simple English. The regulator also has disdain for opt-out boxes, particularly those that attempt to dissuade people by scaremongering.

Now the FCA is giving the industry a year to clean up its sales and marketing practices. Yet there are lots of positives. The FCA approves of the product, highlighting its usefulness to customers, especially following the Jackson reforms. It also dismisses the notion that customers could be paying over the odds for the product. The findings are balanced, and the regulator has shown fairness by giving a year for legal expenses firms to reform. The regulator is often seen as the big bad wolf of the insurance industry. But credit where it is due: the FCA has shown prudence on this matter.

Giles for sale

Interest payments for bank debt is down at Giles - there’s the good news. The bad news is that interest payments to private equity firm Charterhouse are on the up, although those payments will be made only once the company has been sold. But that time is surely now. Having been stung by the collapse of Drive Assist, Charterhouse is understood to be keen to sell its Giles stake. It is probable that Charterhouse has a ‘drag along’ clause and, if that is the case, minority shareholders, including Chris Giles, will have to sell if any buyer wants a 100% of the business. Watch this space.