Beware the insurance middlemen: If you've bought cover through a car dealer, travel agent or shop, it's time to check up
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’.
Devious: Danny DeVito as the dodgy used car salesman in the 1996 film Matilda
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 middlemen 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.
Charity label felt like a ‘wolf in sheep’s clothing’
Age UK has not escaped criticism for its selling of financial products.
Consumer group Which? recently accused it of pricing specialist insurance for the over-50s far higher than regular deals.
Age UK said the analysis was misleading because fake profiles used in the Which? study did not reflect a typical customer, bumping up prices quoted.
Critical: Chris Walker’s mother was overcharged
The company made nearly £22million from selling insurance in the year to March 2015, according to its most recent annual report. The group has around one million customers who bought a mix of with products such as home insurance, energy tariffs and funeral plans. Any profit funds the charitable work of the group.
But some people say the appeal of a charity label can obscure the fact customers are buying a regular commercial deal.
Former customer services manager Chris Walker believes selling insurance deals under a charity brand blurs the lines for elderly customers.
The 66-year-old was helping her mother, Susan, with bills following a stroke back in 2013.
She discovered that Susan, in her late 80s, was overpaying for her Age UK home insurance policy by £37 a month.
Policy prices rise gradually if customers roll over into another year with the same insurer.
Customers can find a cheaper alternative only by comparing quotes from rival firms or by bargaining with their existing provider. Many people are still unaware that renewing automatically each year means overpaying, and Chris was told it was up to her mother to seek out a cheaper deal.
But she says Susan and her late father Freddie believed they were ‘protected’ by the Age UK charity brand and, therefore, had the best deal they could get.
Age UK insurance deals are designed with older customers in mind and any profit goes back to the charity.
But the policies can be priced as aggressively as any other in the wider market – charity does not mean cheap.
Chris says: ‘It felt like finding a wolf in sheep’s clothing.
‘My parents were so confident they had the best deal because of the Age UK label. But they could have had the exact same policy – from the same company – for less.’
Chris’s mother was paid a £100 goodwill gesture for the upset.
A previous statement on Age UK’s website about its trading activities says: ‘We have always striven to offer competitively priced, quality products and services but we never claim to be cheapest at all times.’
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.’
HOW TO SEEK AND BUY INSURANCE
- Check every year that your insurance policies are still suitable and whether the same level of cover can be bought at a cheaper price from another firm.
- Immunise yourself to sales patter by non-financial companies whose main job it is to sell something else – such as estate agents selling home insurance or travel agents pushing holiday cover.
- Use a broker to search the wider market for a good deal at the best price. This could be online using a price comparison website or a traditional broker who can offer advice.
- Know that price comparison websites make profit from insurance sales too. The Competition and Markets Authority, broadly responsible for promoting competition in the UK economy, last week announced it will investigate how switching websites compare products and prices for customers buying home insurance – as well as broadband, credit cards and flights.
- Find help from the British Insurance Brokers’ Association. Executive director Graeme Trudgill says: ‘Customers can benefit from a broker’s first-hand knowledge and experience. Our members are regulated and also operate under our voluntary code of practice for broking and dealing with vulnerable customers.’ To find a broker visit biba.org.uk or call 0370 9501790.
- Ask a few different insurers directly for a quote if you are uncomfortable buying online. Remember that some companies do not appear on comparison websites, such as Aviva and Direct Line.