Tied selling and add-on insurance
Insurance sold alongside another purchase, whose margin comes from the absence of comparison rather than from the quality of the cover.
August 29, 2019: the UK regulator closes claims on the payment protection insurance sold alongside loans, after more than thirty-eight billion pounds in redress. Add-on insurance is sold at the moment of another transaction: a loan, a trip, the purchase of a device, the rental of a vehicle. All its economics flow from that moment. The buyer is captive. He does not compare, decides in seconds and extends to the product the trust he places in the main seller. Margins therefore run far above those of the same cover sold on its own. Loss ratios are sometimes so low that the usefulness of the cover comes into question, and a notable share of policyholders find they were never eligible for the benefit they paid for. Conduct regulators responded with three successive rules. A mandatory pause separates the main sale from the add-on sale. Product governance requires the firm to show the product suits a target market. A value test compares premium to benefits actually paid. The mass litigation over unsuitable payment protection insurance remains the reference point for what a distribution failure costs.
In the United Kingdom, the mass litigation over payment protection insurance sold with loans cost firms more than 38 billion pounds in redress. The regulator had set August 29, 2019 as the deadline for claims.
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