From the 1st April 2016 the Financial Conduct Authority (FCA) rules for add-ons have changed and this will affect how you operate as a business.
The recent study in September 2015 conducted by the FCA found that the value of general insurance products is not always clear and that selling a product as an add-on often leads customers to purchase a product when they might not actually need it.
The FCA has introduced new rules and guidance whereby you can no longer automatically include add-on products within the policy as a ‘package' and opt-out sales are banned unless they are provided free to the customer and provision of product information is paramount. The FCA has advised that providers have until September 2016 to fully comply, allowing sufficient time to implement the changes.
What is an add-on?
The FCA defined an add-on product as:
‘Any type of good, service or right obtained in connection with, or alongside, a primary product – whether it is financial in nature or not.’
An example of an add-on would be a motor legal expenses policy or a motor breakdown policy purchased in connection with the main insurance policy. This does not include additional optional extras (AOE’s) that can be purchased alongside the main insurance product (such as accidental damage cover on a home insurance policy), which are also not policies in their own right.
So how do the new rules affect your business?
The whole sales process for each add-on product will require some analysis and you as a business will need to evaluate and assess.
How do you introduce the product to the customer? By letter, email, text or verbally, you will need to ensure that you are providing enough product information, including: features, benefits and cover exclusions, in order that an informed decision can be made. Consideration to the content of marketing material, websites, quotation, new business and renewal letters and other sales processes should be priority.
The FCA has clarified the existing rule on add-ons as:
“A firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible form so that the customer can make an informed decision about the arrangements proposed.”
The previous ‘traditional’ way of including the product within the new business or renewal price and ‘opt-out’ terms are banned. The majority of insurance providers, we suspect, have already changed from this method. By allowing the customer to choose if they want the cover or not, opt-in provides the customer the time to decide if they need the policy and also the chance to shop around. Although, some customers may not look elsewhere and will always remain loyal to the insurance provider through trust and previous experience.
You will need to ensure that:
- You advise your customers that ‘add-ons’ are optional and for any that had purchased the product before April 2016 where it was automatically included will need to be contacted and advised that they can now be removed.
- Any existing customer journeys can not automatically include the add-on product as being pre-selected.
- If you are offering the product free of charge, any plans to begin to charge for the product will require specific consent from the customer confirming that you can do this and the customer should be informed that they can opt-out.
- Any unbreakable bundles which can not be sold separately can still be sold as a package but on an opt-in basis.
Add-ons should also be introduced at the appropriate time during the sales process otherwise this could be seen as a mis-sale. For example if you provide a quotation for home insurance, then possibly introduce home emergency cover or family legal expenses insurance. Both will add value to the main policy, providing extra cover which is not included within this.
Dealing with renewals
- If the customer was previously sold an add-on product on an opt-out basis, they will need to be contacted to advise that they previously had been sold the product and that the add-on can be removed if they do not require it.
- Renewal invitation documentation will need to detail the product, cover, cost and inform the customer that it is optional and they have the decision as to whether they renew along with the primary insurance policy.
- This can also be discussed in person or by a call and will only be required once and not after every renewal.
How Lawshield can help
Ancillary products are not to be disregarded as they are a valued product and will benefit the customer by providing additional cover to the primary insurance policy. Lawshield can provide competitive net rates for:
- Motor Legal Expenses
- Motor Legal Expenses with replacement vehicle
- Taxi Legal Expenses
- Taxi Legal Expenses with replacement taxi or cash benefit
- Family Legal Expenses
- Motor Breakdown
- Home Emergency
- Return to Invoice GAP
- Excess Insurance
- Landlord Legal Expenses, Landlord Rent Guarantee, Landlord Home Emergency
We understand that product knowledge and understanding is key to the salesperson confidently introducing and selling the product. Explaining with examples of when the product can be utilised also helps the customer to understand and make the decision to whether they want to purchase.
To assist with staff training and development, Lawshield provide product presentations, content for marketing material and training.
If you require further information on any of our ancillary products, please contact ourselves on:
Tel: 01925 444 847 Email: Salessupport@connexus.co.uk
Further details can also be found on the FCA website http://www.fca.org.uk/
It would be valuable for ourselves as a provider of add-on products to receive any feedback on the following changes and how this has affected you as a Broker and as a business.