Two of our AC Consultants, Saraya Fawcett and Ellie Welch, recently attended a CII lunchtime lecture at the Town Hall in Leeds City centre, presented by David Ross from Valeos. The lecture gave some great insight into 'add-on products', but mainly covered the advantages and disadvantages for insurance companies selling these. Ellie reported back to the team as follows:
Add-on products can be sold alongside, or on the back of a ‘primary/main insurance product’, maybe as another insurance policy, or goods and services like cars and holidays. It was the subject of an in-depth market investigation in July 2013 after the FCA found consumers were potentially being overcharged by £200 million per annum.
The add-on market alone is worth a huge £1 billion and many companies benefit from selling these as a way of vastly increasing revenue. Buying add-ons, alongside other insurance products, can be advantageous for consumers, as it is a quick way to further protect themselves against a loss.
David Ross used an example of a shoe shop to help explain how add-ons work… Imagine you have just bought a pair of suede shoes; you may be recommended by the shop assistant to buy some suede polish to help keep them clean – you don’t necessarily have to buy the polish, but if you do you will have extra protection on your primary/ main product , which should help them last longer. This example helped support David’s argument that companies need to stop thinking of them as ‘add-ons’, but rather as ‘adding value’!
Unfortunately, there is a vast amount of evidence to suggest that these products don’t always benefit consumers and are being mis-sold. But is it the product that is flawed, or the selling process?
At the lecture, we learnt how many companies, including some leading insurers, have received fines as big as £7.4 million from the Financial Conduct Authority (FCA) for mis-selling products, either intentionally or unintentionally. Findings suggest that companies have focused more on maximising profit, instead of putting the customers' needs at the heart of their business.
After many negative instances surrounding the add-on market (including the PPI scandal), the FCA are planning to provide customers with better protection by banning the ‘pre-ticked boxes’ that appear on some applications as, surprisingly, it seems many consumers have agreed to buy an add-on product without even realising it.
Although add-on products are often very beneficial, there are many negative aspects surrounding the buying and selling of them, which is causing a headache for the insurance companies. Businesses must improve and change the way that they sell these products, in order for them to truly ‘add value’.