Firms may be banned from automatically opting customers in to add-on insurance products if plans announced by the Financial Conduct Authority (FCA) today get the go-ahead.
Opt-out selling is the practice of defaulting consumers into buying a product, which they then have to opt out of. For example using pre-ticked boxes to sell the consumer add-on insurance.
But the regulator has today launched a consultation, which closes on 25 June, with the financial services industry on banning these opt out clauses. See MoneySavingExpert.com's Cheap Insurance section to find the best insurance for you, whether for home, car, pet or travel.
The move follows the FCA's market study into the general insurance add-ons industry last year, which found that opt-out selling often results in customers buying an insurance product they don't need, and in some cases, they weren't aware they had even bought the add-on.
It estimates customers have overpaid by as much as £108 million a year by getting add-on insurance they don't need.
So what exactly is the FCA proposing?
The FCA is proposing a ban on add-on sales of regulated and unregulated products offered alongside financial products, such as legal expenses sold with home insurance, breakdown or key cover sold alongside motor insurance, or protection cover when taking out a mortgage or credit card.
The regulator also wants firms to:
- Provide customers with "more appropriate and timely" information that will allow them to make an informed choice about what, if any add-on products they need, and to identify the best package.
- Introduce the most common add-ons to customers earlier in the sales process, which should make it easier for them to compare packages.
- Give the annual price of add-ons rather than just giving monthly figures so that customers can better understand the price they'll pay.
'Forgetting to untick a box is not making an informed choice'
Christopher Woolard, director of strategy and competition at the FCA, says: "This is about ensuring consumers can make the right decision on what add-on insurance they do or don't need. Forgetting to un-tick a box at the end of a purchase is not making an informed choice.
"Our work shows that the opt-out model means too often consumers are buying a product when they have not been able to give any thought to whether or not they need it. We are all familiar with having to double check whether or not we have accidentally agreed to buy an add-on insurance product when buying car insurance or tickets online for example.
"These proposals will mean that consumers will be in a better position to decide what they want and consider the options available to them. Fewer consumers will end up with products they didn't want or don't even know they own".