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Following reports in the insurance trade press in June that the Financial Conduct Authority (FCA) was unlikely to proceed with its intention to require general insurers to publish claims ratio information on add-on products, the regulator has published a discussion document on possible alternatives, and is seeking market feedback on how to increase product quality and transparency.

Arc Legal welcomed the regulator’s decision to consider alternative options to help consumers make an informed decision about the cover they are purchasing. Responding to the news, Richard Finan, Director of Arc Legal, said: “We have discussed whether the publication of claims ratios at the point of sale for an add-on legal expenses product would reflect its true value, and provide an accurate measure of the benefits it offers the consumer.”

The plan to enforce publication of claims ratios data was part of the FCA’s final findings in its market review into add-on products, published nearly 12 months ago. A similar position was taken by the Competition and Markets Authority in its private motor insurance report published in September 2014.
While fully supporting the drive for add-on clarity and transparency, we believe that wider factors need to be taken into consideration to truly demonstrate the value to consumers – aspects such as the services provided to customers which are not shown as payments by underwriters. For example, the role of a legal helpline in providing valuable advice and assistance on a range of legal issues, and the fee structures that are in place with panel solicitor firms helping to control the cost of litigation are important aspects in demonstrating the value of add-on Legal Expenses Insurance.

Arc Legal already offers management information tools, enabling our trading partners to capture this information and provide a clear and accurate picture on the performance and value of the product. In addition, we place a strong emphasis on supporting our broker and insurer clients with staff sales training and the provision of marketing literature to help them explain the products to their customers.

In publishing its new discussion paper, the FCA said that it still believes providing value information will incentivise firms to increase competition, while highlighting products that may not offer good value. The discussion paper sets out three potential options for market feedback. These include providing claims ratios as a stand-alone value measure; a package of claims frequencies, claims acceptance rates and average claims pay-outs; and claims ratios and acceptance rates. Market feedback on these options and thoughts on other potential alternatives have been requested by 24th September 2015.

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