Regulator The Financial Conduct Authority (FCA) claims insurance companies are overcharging customers by up to £200 million a year for extra sold with car, mobile phone and home insurance.
The results come from an in-depth review of the market carried out by the FCA launched in July 2013.
“There’s a clear case for intervention,” said Christopher Woolard, director of policy, risk and research at the FCA. “Competition in this market is not working well and many consumers are simply not getting value for money. Firms must start putting consumers first and stop seeing them as pound signs.”
The FCA inquiry revealed insurers muddle pricing for customers with add-ons making direct comparisons between policies difficult.
The research also showed that customers failed to shop around for better deals when their insurance was bundled with other products.
As many as 20% of insurance buyers either did not realise or forgot that they had bought add-ons.
One area of concern targeted by the FCA is guaranteed asset protection (GAP) insurance for cars.
The insurance covers the gap between an insurance pay-out and the price paid for the car if the vehicle is stolen or written-off.
The FCA wants to change the rules to give customers a cooling off period for taking out the cover in the days following the purchase of a car.
Other proposals from the FCA include scrapping pre-ticked boxes on application forms that automatically include buying add-ons and ordering insurers to publish pay-out statistics as the regulator is concerned many insurers failed to settle claims as customers expected.
The proposals cover direct sales and buying through online comparison sites
Before imposing the rules, the FCA is asking consumers and insurers for their opinions about the changes by April 8.
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