Beware the insurance middlemen
As the City’s watchdog uncovers mis-selling and poor practice from third parties, experts say...
ANYONE with car, home, travel and warranty insurance policies bought via ‘middlemen’ instead of directly from an insurer should check their policies to ensure they are fit for purpose.
This warning comes after the City regulator, the Financial Conduct Authority, uncovered widespread poor sales practices and evidence of mis-selling to customers who bought via a third party.
The regulator says its overall findings point to ‘material risk of customer detriment’.
James Daley, of consumer group Fairer Finance, says: ‘The regulator’s report is scathing. Customers have been sold insurance they could never claim on and there are examples of people being sold insurance without them knowing. It is serious.
‘There will undoubtedly be some big insurers at fault here – companies that have been too lax in the way they have taken on new business.’
Second-rate insurance selling was carried out by middlemen legally allowed to sell policies on behalf of big insurers.
Daley adds: ‘Check your policy, especially if you didn’t buy through a comparison website, broker, or direct from the insurer.
‘But even if you did it is worth double checking you have a policy that meets your needs.’
Questions customers should ask themselves include:
Did I consider other policies when I bought this product?
Do I need this cover and is it worth the money? This is especially important in relation to warranty insurance, which covers the cost of repair or replacement of household items if they break.
Am I eligible to claim on my policy if I need to? This is a key question for holidaymakers with pre-existing medical conditions who bought travel insurance.
WHO ARE THE MIDDLEMEN?
KNOWN as appointed representatives, they include travel agents selling holiday insurance and car dealers selling ‘GAP’ insurance – guaranteed asset protection which covers a shortfall between what someone originally paid for a car and its insurance value if it is later written off or stolen. Shops also sell ‘extended warranty’ insurance on household goods, such as electrical items and washing machines.
Other companies – supermarkets and charities – might promote or sell insurance deals with their branding on it. But buying cover based on it being a popular brand, or because it is convenient to purchase alongside something else, is not the best way to shop for insurance. Daley says: ‘You will probably pay more if you buy an extended warranty or GAP insurance from the company that sold you the washing machine or car in the first place. The same goes for travel insurance from travel agents.’
Since these middlemen are not directly policed by the City watchdog, regulated parent insurance companies have responsibility for knowing what salesmen in their networks are up to – and there are around 20,000 of them to keep an eye on.
But most insurers investigated have not been doing this effectively enough. In the worst cases middle-
men have mis-sold insurance, failed to monitor or record customer complaints and not properly protected clients’ money. Sales tactics at two firms selling warranty insurance included: pressuring potentially vulnerable customers; advising on products they were not allowed to; lying about a product’s features; failing to mention exclusions and pretending to be from the firm that originally sold a product to customers.
Meanwhile, firms selling travel insurance have not been doing enough to ensure customers with pre-existing medical conditions can successfully claim on their policies. Sales agents at one company selling GAP insurance have been found to have falsified customer signatures.
WHICH ARE THE INSURERS?
SPECIFIC insurers have not been named in the regulator’s report, but 15 with a network of middlemen were reviewed.
Of those, the regulator has taken immediate action against five – asking two to cease sales by its third-party middlemen and stopping all five from taking on any more third-party sellers.
The regulator also sent general ‘Dear CEO’ letters to insurance chiefs, setting out its findings and expectations.
The Mail on Sunday has learned that Age UK – which sells car, home and travel insurance through its commercial arm Age UK Enterprises – was one of the 15 targeted firms. In a letter to the company, seen by The Mail on Sunday, the regulator raises concerns about ‘shortcomings’ with some of its middlemen and their ‘financial solvency’ in some cases.
But Age UK is not one of the five insurers that the regulator has taken action against. A spokesman for Age UK Enterprises says: ‘Age UK Enterprises was pleased to be chosen as one of 15 firms which participated in the review. The regulator pointed out some areas where it thought we could improve, which we have actioned.’