FSA tightens insurance mis-selling rules
The Financial Services Authority (FSA) has announced new rules to prevent banks and building societies mis-selling accounts which include insurance policies.
Customers pay a fee for packaged accounts, which often include travel insurance, mobile phone insurance, and breakdown cover alongside deals on overdrafts, foreign currency and even offers on music downloads and business class lounge access at airports.
In the wake of the Payment Protection Insurance (PPI) mis-selling scandal, the regulator wishes to ensure that packaged bank accounts aren’t sold to customers who are ineligible to benefit from the insurance products included in the package.
Around 20 per cent of UK adults have a packaged bank account, and some have been unable to claim on the insurance policies included with the account.
Under the new rules banks and building societies will have to check if people applying for a packaged account will be eligible to claim under the bundled insurance policies.
Some insurance policies do not cover people with pre-existing medical conditions and some have an age limit, over which people are not eligible to claim.
Sales staff will be required to alert customers to insurance cover that may not be suitable for them and customers will be sent eligibility statements to check if the policies still meet their needs.
Sheila Nicoll, director of policy at the FSA said: “These products are often referred to as upgraded accounts, but if you end up paying for an element you cannot claim on, it is money down the drain.
“We are closely monitoring the promotion of packaged bank accounts and the new rules will make sure customers know what they are buying and that they can rely on the product or have the limitations explained before buying.”
The FSA will introduce the rules by the end of March next year.
Meanwhile the bill for PPI mis-selling continues to grow.
Yesterday Lloyds Banking Group revealed it has set aside a further £700 million to meet the cost of compensation claims.
The bank has now set aside more than £4.2 billion, around £1 billion more than it originally estimated.