Purchasing an insurance policy is one of the top priorities of any earning individual. Life insurance, home insurance, travel insurance, health insurance and so on. The list has now extended to cover even to entities like second-hand vehicles through Guaranteed Auto Protection Insurance (GAP) policies. But do you know what percent of it is actually the cost of the policy? Less than 60%, according to the latest report by the FCA. In this article, let us see how this happens.
What this all about?
The FCA released its report this month titled General Insurance Distribution Chain – Thematic Review which consists of many eye-opening and eye-watering facts about the insurance industry.
It covers a limited area of general insurance and leaves bigger categories like house insurance or car insurance. This also includes the insurance offered by car dealers and travel agents bundled in with a short trip. Another effective example is the sale of insurance of damage or technical help with a mobile phone. Carphone Warehouse was fined £29 for misselling it.
What are the facts uncovered in the report?
The insurance policies (even the innovative ones like the GAP), are being sold at highly inflated rates and many times they cannot be claimed.
Let us take for example, the Guaranteed Asset Protection (GAP). This has to come into the picture when your new car is sold or stolen within one or two years of its purchase. It intends to cover the “gap” amount, when the amount paid by the regular car insurer will be lesser than the money you paid for it.
Calculations reveal that more than 50 percent go to the dealer alone. For example, if you pay £360, £81 goes to the insurer(company), the distributor gets £6, and the car dealer gets £231 as the commission. Insurance premium tax added to this gives £360. This reveals that 59.2% goes to the dealer and without considering the tax amount, it would be a whopping 71 percent.
This, however, is not the only problem. We may call this the intelligence of the people profited by this. The problem is that many people who are sold these policies are not even eligible to claim the amount. For example, travel insurances are offered to people without a health checkup of the clients, who may not be eligible to claim and offering GAP’s to second hand vehicles where there is actually no “gap” to cover.
What is the problem?
The first and foremost problem that we find here is the lack of awareness on the part of the clients. They purchase policies without considering the pros and cons.
The second problem is the huge gap between the insurer and the retailer. The long chain makes it the people involved to forget what their policies actually are and whom they actually cover.
What could be done?
The FCA has to urgently intervene and ban commissions on the sale of insurance schemes, just the way it was made for pensions and investments. However, FCA does not seem to have much power here because many retail sales are exempt and none of them retorts the ABI.
So, as customers, it is our utmost duty to be aware and buy only what is required, by reading all the terms and conditions. There will be cheaters as long as there is ignorance.
