Who's been a naughty insurer?

The FSA’s scrutiny of low-value general insurance products came to a head this morning when the regulator announced it had fined credit card insurer Card Protection Plan £10.5m for mis-selling insurance products.

FSA director of enforcement and financial crime Tracey McDermott said that the regulator was still worried about low-cost insurance that “offers little or no value to the customer,” and added that the CPP fine was evidence of “the action we will take if our warnings are not heeded”.

The FSA, and the incoming Financial Conduct Authority (FCA), is clearly concerned that some of these products rip off consumers. Incoming FCA boss Martin Wheatley said in September that the FSA had found “almost every type of poor practice” when it investigated low-value general insurance products earlier in the year.

Low-value general insurance policies have long been a staple for insurers and brokers because they are profitable to sell, generally useful to the customer and also encourage customers to stay with one broker rather than shop around. Anything the regulators do to curtail this market will have a knock-on effect on profitability, especially in sectors where rates are so soft that brokers rely on low-value add-ons to make money.

It’s difficult to say how worried insurers and brokers should be by the increased regulatory focus on this end of the market. It is reasonable to think that the regulators should take action only against firms that mis-sell the products through ignorance or arrogance, and will understand that the vast majority of these policies are designed and sold properly.

But will they? Scaremongering should be avoided, but equally, the fact cannot be ignored that part of the FCA’s approach to regulation will focus around preventing risks to consumers before these become widespread. So, will regulators pick on individuals or introduce sweeping bans?

Broker compliance experts are upbeat about the future of low-value products, and believe that brokers have nothing to worry about provided they are transparent about what they sell and understand their clients’ needs. Let’s hope the regulators are sympathetic to this.