The City regulator is set to launch a review into the insurance industry amid concerns that customers are being duped when it comes to the "add-ons" offered on selected consumer products.
The Financial Conduct Authority will spend the next six months reviewing the £4 billion insurance market, examining the sales policies, legitimacy, and value of ‘cover’ products such as warranties, as it takes a more progressive approach to tracking down mis-selling practices.
Chief executive Martin Wheatley (pictured, right) said it was time to shift the regulatory focus onto the insurance sector.
He described such "add-on" insurance policies as "an after-thought" and said that they were mostly "profit-making machines."
"It’s different to when you go shopping for home or car insurance. Then, companies have to explain what you are getting and compete for you," he told the Telegraph.
“Our concern is that the products are generally poor value, and by and large people don’t pay too much attention to the terms and conditions.”
One possible outcome of the review could be improved transparency for consumers, Mr Wheatley suggested.
Insurance companies could be forced to display their profit margins on such policies and list competitors’ prices to quash anti-competitive practices.
A Distinctly New Regulator
The new dual-regulatory system encountered a baptism of fire following its takeover from the Financial Services Authority in April.
Andrew Tyrie, chairman of the Treasury Select Committee, demanded more from the new regulator over the Bank of Ireland’s controversial decision to invoke a clause in its small-print to hike its mortgage rates.
Andrew Tyrie questions the agenda of the new regulator in March over the Bank of Ireland.
But Mr Wheatley believes that the new conduct authority is beginning to establish its differences from the previous system of regulation.
He is expected to tell insurance bosses today that the FCA is "a very different animal".
The new regulator is not merely concerned about product compliance, he will say, but also about the competitiveness of markets and the fairness of products within an ethical consumer environment.
"We understand why people reserved judgement - the FSA needed to change," he says, with the insurance sector now set to become subject to these new standards.
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