Optional Extras
The FSA has published on its web-site details of research it has conducted into policy add-ons.
These are typically sold to retail customers, and can relate to legal expenses, uninsured loss recovery,
mechanical breakdown and personal accident cover
Whilst the cost of these optional add-ons is generally low compared to the cost of the main product sold, that
does not mean that Intermediaries are immune from the need to ensure that the sale of such products is
conducted in a compliant way.
Policy add-ons are usually a separate insurance contract and, as such, the normal rules concerning disclosure
and documentation in a durable medium apply.
The FSA’s findings show significant non-compliance in the market. Some examples of these findings
are:

in 70% of cases, information had been presented to the customer that was unclear and potentially
misleading

in 56% of cases, the firms’ documentation indicated “advised sale” whereas no advice or
recommendation was given concerning the add-on policy

in 81% of cases, the firm’s treatment of the optional extra within the Demands and Needs Statement
was not detailed adequately

some firms had merely provided a verbal explanation of the Demands and Needs, and were therefore
unable to demonstrate that they adhered to the ICOB rules

in 83% of cases, the price of the optional extra was not detailed and disclosed separately
So what should you do?
1. The first decision to make is whether you wish the sale of the add-on to be advised or non-advised. As
with all products, this disclosure (usually contained in your Terms of Business) needs to be specifically
stated and transparent.
An advised sale is where a firm gives advice to a person in his/her capacity as a potential customer, or
to an agent for a potential customer, on the merits of him/her buying (or not buying) a specific general
insurance product.
The above information is a summary of matters which will affect the majority of firms conducting Insurance Mediation. However, each firm’s
requirements are individual and it is important that you always seek specific advice from ICS before acting on anything contained in this publication
Edition 2006-09 – Optional Extras
A non-advised sale involves a firm providing information only to a potential customer, or to an agent
for a potential customer, leaving him/her to make a choice about how he/she wishes to proceed.
2. Once you have made the decision as to whether the sale of the add-on product is advised or nonadvised, review your documentation (normally your Client TOBA), and make sure that there is total
clarity and accuracy in your disclosure.
3. Ensure that an appropriate Demands and Needs Statement is provided (this may be part of the
Statement in respect of the main product, or separate) and (where appropriate) a Suitability
Statement.
An advised sale carries with it the responsibility to perform a detailed Demands and Needs
Assessment, produce a Demands and Needs Statement, and provide a Suitability Statement which
states that the product recommended meets the customer’s Demands and Needs (other than stated
exceptions), and how it does so.
A non-advised sale carries a lower requirement for assessment of the customer’s Demands and Needs,
and this requirement can usually be met by a generic Demands and Needs Statement, often provided
by the insurance provider. A Suitability Statement is not required.
4. Review your documentation to ensure that there can be no misunderstanding about the optional
nature of the add-on product. At a minimum this should be clear on the Statement of Price, but TCF
would be well served by including this fact on your letters to clients, renewal notice or Demands and
Needs Statement as well.
5. Ensure that your Statement of Price indicates the price of the add-on separately, and states that the
cover is optional. This will inevitably necessitate the customer needing to “opt-in” rather than “opt-out”
of the extra cover. It is likely that the presentation to the customer of external or internal funding
forms which includes the add-on without first explaining clearly to the client that it is optional would be
considered as not treating the customer fairly.
6. Ensure all communications with clients are clear, fair and not misleading (Principle for Business 7).
What this means is that all statements made should:




be satisfactory for their purpose;
be accurate;
be in plain English; and
explain technical terms
The above information is a summary of matters which will affect the majority of firms conducting Insurance Mediation. However, each firm’s
requirements are individual and it is important that you always seek specific advice from ICS before acting on anything contained in this publication
Edition 2006-09 – Optional Extras
7. Anticipate further work from the FSA in 2006 in regard to the ways in which firms meet (or do not
meet) the requirements in respect of disclosure documentation. This will inevitably involve looking at
how firms deal with optional extras. The FSA has stated that it will take action against firms which
deliberately seek to mislead their customers.
If you have queries concerning this article, please contact your usual ICS contact.
The above information is a summary of matters which will affect the majority of firms conducting Insurance Mediation. However, each firm’s
requirements are individual and it is important that you always seek specific advice from ICS before acting on anything contained in this publication
Edition 2006-09 – Optional Extras