Have insurance policy add-ons had their day?

By: Karen Scott

05/03/2024

With the 31^st July 2024 deadline for insurance firms’ first annual board reports in which they must review their adherence to Consumer Duty fast approaching, we asked 230 insurance professionals how they feel about the regulation, specifically focusing on “add-ons” to insurance policies.

The FCA introduced Consumer Duty to set higher and clearer standards of consumer protection across financial services, and to make sure firms are putting their customers’ needs first. One of the primary issues that the insurance industry has faced in the wake of the introduction of the regulation is in streamlining the vast amounts of information that consumers need to understand. To make informed choices on products, consumers are forced to look through substantial volumes of information.

This amount of information only increases when you consider the different add-on options that come with insurance policies. These add-ons can cause further confusion for consumers who can struggle to understand these products, and their potential need for them, which are typically much more complicated.

In our recent survey we found that 75% of insurance professionals feel that add-ons to insurance policies specifically require further explanation from a broker/insurance professional. Additionally, 58% feel that add-ons to policies add significant extra wording (and hence time) for customers to read and understand. Furthermore, 40% felt that standalone products, such as legal expenses cover or accidental cover are rarely requested by customers independently, which suggests that there is little interest in these products for the majority.

One respondent to our survey said “Add-on products are appropriate when the client understands what their main policy does not cover and how the add-on product will help them transfer the risks left by the limitations of the main policy.”

These results highlight why it is imperative that brokers provide extra time and clarity for clients, especially those classified as vulnerable, which many insurance clients can be considered as, for example by being in an emotionally heightened state having suffered some sort of misfortune.

Another issue is the common practice of providers requiring clients to complete their insurance purchases through online quote and buy channels for ease of use. This severely limits the opportunity for additional support around add-ons prior to product purchase, yet another reason it is critical that these policies are clear and informative, meaning consumers can make informed decisions on whether these add-on policies are suitable for their circumstances. This was reiterated by the insurance professionals who completed our survey, who highlighted the areas below where they felt they would benefit from more support or guidance to meet the requirements.

In your opinion, what additional support or guidance would be helpful for insurance brokers, or your business, in meeting Consumer Duty requirements? Note: excludes NAs; only codes with 3+ mentions included.

How can Research in Finance help?

Our Communications Compass is a community testing solution designed to ensure that your marketing communication materials are meeting the regulatory requirements. The FCA has indicated that all client communications will need to be continually monitored post-implementation of the duty. Communications Compass allows for both testing and re-testing of specific materials by our proprietary panel of a cross-section of consumers, including vulnerable clients, resulting in a templated report card that reveals a variety of overall indicators, anonymised competitor positioning, suggested improvements, and more.

For more information on how your firm could benefit from joining Communications Compass, please get in touch with Mick Hrabe or Richard Ley. You can also call us on +44 (20) 7104 2235.