Free period policies have come under fire from insurance network CETA.
David Quick, managing director of CETA, has said that household or mortgage policies offering customers free periods could be in breach of Treating Customers Fairly principles. And brokers need to be very careful about how they sell such policies, to avoid complaints of mis-selling and FSA action.
Quick said: “The clear implication is that people are being signed up solely because the first three or six months are free. The cancellation levels would be far lower if the true value of the policy and its benefits was explained correctly and clients were convinced at the outset of the merits of buying the insurance.”
“The simple fact is that these so-called ‘free' periods are not free – the cost is merely deferred and they quickly become very expensive. The payments in the months following the free offer period are far higher than is available by shopping around for the same level of cover.
“This has a knock on effect on compliance. Can a broker claim to be treating customers fairly by only offering the three or six-month free policy without clearly explaining the long-term cost may be higher and giving an option to buy a better value best-quote policy that will be far cheaper overall?”
