Consumers will get better protection when buying add-on insurance for items including cars and holidays under a shake-up planned by the Financial Conduct Authority (FCA).

Using pre-ticked boxes to sell policies on websites – something has long warned consumers to watch out for – will be banned, while firms will be forced to tell customers how many claims succeed. (See our Cheap Car Insurance and Cheap Travel Insurance guides for tips on cutting costs.)

Providers must "start putting consumers first and stop seeing them as pound signs", the FCA says. It is launching a consultation into the rules, which are due to be in place from mid-May.

An FCA investigation found add-on products often offered poor value, while sales were uncompetitive, with customers potentially being overcharged £200m a year for insurance they may not need or even use.

Its study was particularly critical of guaranteed asset protection (GAP) insurance, which covers the difference between the price paid for a car and the amount offered by an insurer if it is stolen or written off.

The Financial Ombudsman Service says complaints about add-on insurance products are rising. It received nearly 3,000 complaints between April and December 2013, compared to 2,852 complaints in the same period in 2012.

What new rules are proposed?

The FCA studied how add-on insurance works in the travel, gadget, car, home emergency and personal accident markets. It proposes:

  • Banning pre-ticked boxes to ensure consumers actively choose to buy an add-on insurance. (See the Travellers beware pre-selected 'extras' MSE News story.)
  • Making sure customers who buy GAP insurance confirm they want it in the days after they've bought their vehicle.
  • Forcing firms to publish claims ratios showing how many people successfully claim on their insurance. This should highlight low-value products.
  • Improving the way add-ons are offered through price comparison websites, including how and when they are sold.

FCA director of policy, risk and research Christopher Woolard says: "There's a clear case for us to intervene. Competition in this market is not working well and many consumers are simply not getting value for money.

"We believe our proposals will address these issues and prevent consumers paying for poor-value insurance products that they may not need or use."

What did the FCA's study find?

The FCA found 25% of consumers who bought insurance as an add-on were not aware they could buy the product separately elsewhere, while 58% of buyers did not perform a price comparison.

38% of add-on buyers said they had not planned to buy add-on insurance before the day they bought it, while 19% couldn't even remember buying it when asked three to four months later.

Just one in 10 people successfully claimed on GAP policies between 2008 and 2012, and less than 9% claims for personal accident add-on insurance were paid. This compares with 64% for personal insurance, including motor and household policies.

I think I've been misled. What can I do?

The FCA says you should first complain to the firm that sold you the product.

If you're unhappy with the response the company gives you, or it doesn't reply within eight weeks, you can take your complaint to the Financial Ombudsman for further help and advice.