The FCA’s first market study: preliminary findings on problems with the GI add-on sales process (internal material - CMS only)

The market study was begun in anticipation of the FCA’s new objective of ‘promoting effective competition in the interests of consumers in the markets for regulated financial services'. The FCA subsequently elaborated on its interpretation of this objective, stressing its particular concern with the failure of competition that takes place when customers pay over the odds for products because of (perhaps consciously) confusing marketing practices.

On 11 March 2014 the FCA published MS14/1: ‘General insurance add-ons market study: Provisional findings and proposed remedies’. The centrepiece of the market study was an experiment in behavioural economics conducted by London Economics; this was described in the accompanying Occasional Paper No. 3: ‘How does selling insurance as an add-on affect consumer decisions?’, which both described in further detail the outcomes of the particular experiment with GI add-on purchasing models, and also discussed more extensively how the FCA might make use of behavioural economics in future. (This will be the subject of a separate RegZone Report in future.)

The primary conclusion of the market study was that the add-on sales process does have a deleterious effect on consumer comprehension, leading to what is effectively misselling of GI products.

[To be continued]