FSA alert on bank accounts with insurance add-ons

by Gill Montia

Story link: FSA alert on bank accounts with insurance add-ons

In its 2010 Financial Risk Outlook report, the Financial Services Authority (FSA) notes that banks are responding to today’s pressures by increased diversification into products and services that generate fee income, possibly at the customer’s expense.

One example where the regulator sees the potential for “consumer detriment” is “packaged accounts” which “may offer value for money for some consumers, but they may not benefit all”.

Such accounts frequently include insurance cover and the FSA points out that in some cases, consumers could be better off purchasing cover individually, or not at all.

Furthermore, where banks offer add-ons in the form of insurance products, they do not necessarily provide the expected level of cover.

Around 15% of UK adults have some form of packaged bank account the report states: “The potential for consumer detriment, although not likely to impact any individual consumer significantly, could occur across a large population.”

The regulator also has concerns that profitability pressures at the UK’s retail banks may result in greater reliance on bancassurance business.

According to the FSA: “The incentive to provide investment products to a greater number of clients could lead to inappropriate investment advice or to sales of products that are inappropriate for the target market.”