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Insurance extras – could your bank cover you?

Insurance extras – could your bank cover you?

Category: Insurance

Updated: 12/03/2014
First Published: 12/03/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Insurance can be a vital purchase, protecting your possessions (or even yourself) and ensuring you're not lumbered with a costly repair bill should things go wrong. But, what about add-on insurances? Those little extras that insurance firms like to plug when you buy the likes of home emergency cover, a holiday, a mobile phone, the latest gadget or even a new car – many people don't even think of them, but do you really need that kind of cover?

We ask because the Financial Conduct Authority (FCA) has just launched a full-scale assault on the £1 billion insurance add-on industry and has demanded that it make changes, after finding that it offers many consumers poor value for money.

Following a market investigation announced in July last year, the FCA has found a lack of competition, poor communication with consumers, a low claims ratio (meaning most customers spend a lot more on insurance premiums than they'll ever get back), lack of awareness of the alternatives and even potential overcharging, with consumers failing to shop around and a lot being charged for products they may not need, want or even remember getting.

Highlighting the lack of awareness surrounding add-on products, their investigation found that 25% of consumers who bought the product were not aware that they could buy it separately while 58% didn't make comparisons with other products on the market – compared with 22% of those who buy standalone policies. An additional 38% hadn't planned to buy add-on insurance before the purchase and 69% couldn't remember how much they'd paid for it a few months later, and a further 19% didn't even remember buying it.

This could mean that consumers could easily be getting a poor deal, particularly those who fail to shop around, and if they don't remember buying it they could miss out on making a claim – leaving them further out of pocket. There were particular concerns with guaranteed asset protection (or GAP) insurance, usually offered when you're buying a car, with the sales process meaning a lot of buyers think the only source of the product is there and then in the showroom. It isn't.

"There's a clear case for us to intervene," said Christopher Woolard of the FCA. "Competition in this market is not working well and many consumers are simply not getting value for money. Firms must start putting consumers first and stop seeing them as pound signs."

A number of remedies have been proposed to address the issues, including a ban on pre-ticked boxes and improving the way that add-ons are offered, thereby ensuring you're not signing up to something without being aware. Providers will also be forced to publish claims ratios to highlight poor-value products and incentivise them to offer better prices, and in the case of GAP insurance, customers will need to confirm they wanted the product following the sale.

"We believe our proposals will address these issues and prevent consumers paying for poor-value insurance products that they may not need or use," added Mr Woolard, and it's hoped the changes could ensure consumers get a much better deal and will encourage them to shop around.

However, it's worth considering whether you really need the insurance – or whether you're already covered. A lot of current account packages actually offer a lot of these "extra" insurances as part of their overall incentive scheme, with the likes of travel insurance, gadget insurance and even breakdown assistance often being included.

Normally you'll be charged a monthly fee for the privilege of having this kind of package, but in many cases it can be a lot cheaper than buying insurance policies individually. If you've already got this kind of account make sure to check the benefits before you buy an add-on product, and at the very least make sure to shop around if you need anything extra – you don't have to sign up to the policy there and then no matter what you're buying, and you could well get a far better deal if you look elsewhere.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.