FSA turns screws tighter on add-ons

The FSA has announced that it will take a hard line on add-on insurance sales this year.

In the regulator’s business plan for 2012/13, published today, the FSA said it would stop the sale of some add-on products and come down hard on the firms that sell them.

It is the second FSA warning in a month over ancillary products. The previous one was in the Retail Conduct Risk Outlook 2012 review.

This focus on add-ons is both bad news and good news for general insurance brokers, many of whom rely on them to make money in an increasingly competitive market.

Bad for brokers

The FSA has taken a more active interest in insurance brokers recently. Last month it investigated Barbon subsidiary HomeLet over the way its estate agents sold non-core contents insurance.

Brokers should be worried that the FSA will stop some firms from selling ancillary products and order customers to be refunded for certain policies.

Furthermore, there’s uncertainty in the air, as the regulator has not mentioned which add-ons it will concentrate on, or whether it will look at all classes.

Good for brokers

The good news is that the regulator has not singled out insurance brokers specifically, and will be concentrating its efforts on “insurance intermediaries”.

In FSA jargon, this class also includes mortgage brokers and firms that sell insurance outside of their normal business, such as a motor dealer selling key insurance.

Insurance brokers are a minority in this class, and because selling insurance is their day job, they are also the most likely to be selling add-ons properly.

Wary of going too far

It’s worth being clear: the FSA has no problem with add-ons per se, just the add-ons that “offer poor value for customers who have little prospect of claiming, and deficiencies in sales practices of these products”.

Professional insurance brokers selling legitimate add-ons with proper disclosure should escape the attention of the FSA, but the danger is that the regulator will be overzealous and face accusations that it is coming down unfairly on insurance brokers.

There’s no sign that the FSA is throwing the book at insurance brokers over add-ons just yet, but it has certainly been overbearing in the past and could be again.