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Summary of the FCA’s report on its thematic review into Motor Legal Expenses Insurance (MLEI)

Background

On 7 June 2013, the Financial Conduct Authority (FCA) published its report into Motor Legal Expenses Insurance (MLEI). The report looks at MLEI from a number of perspectives, including its value and usefulness, customer understanding and the sales process. It is the first report utilising the FCA’s thematic review approach to insurance supervision.

The report follows the OFT’s December 2011 report “Private Motor Insurance – Summary of Responses to the OFT’s call for evidence”, in which the OFT called on the FSA to assist insurers in ensuring customers are provided with appropriate information before purchasing MLEI.

The report only covers MLEI (not other legal expenses insurance products) and only before-the-event products. After-the-event products were considered too bespoke to examine, as they are sold once a claim event has occurred and are individually written and priced.

In preparing the report, the FCA visited a cross section of insurers, conducted qualitative and quantitative consumer research, distributed a questionnaire to insurers and intermediaries, and offered feedback of their findings to insurers and consumers.

Conclusions

The FCA concludes that MLEI is a useful product for consumers. It enables them to pursue their legal rights to recover uninsured losses following a motor accident for which they are not at fault.

In some cases MLEI also provides access to a legal helpline and motoring prosecution defence, and is packaged conveniently for the consumer. Although consumers have a high level of awareness of MLEI, they do not understand it. It is often sold as an add-on at the end of a lengthy sales process for the core motor insurance policy.

The report recommends that insurers re-evaluate their approach to selling MLEI in three specific areas:

1) The basis on which MLEI is provided – 58% of providers sell the product on an “opt-out” basis. It is likely that most consumers do not have the confidence to override the authority of the provider and opt-out of MLEI. The FCA came to the view that it is hard to see opt-out selling of MLEI as consistent with good consumer protection. The practice of “bundling” MLEI as part of a wider package of add-ons is also criticised;

2) The quality of the explanation of MLEI provided to the consumer on sales calls, websites, and through policy wordings was varied and could be improved. Variable quality in policy wordings was found. Typical problems identified included that policy wording was lengthy, legalistic and difficult to understand;

3) The extent of cover provided. Consumers value motor prosecution defence and legal helplines as part of their MLEI cover which some, though not all, policies provide.

 

 

 

 

 

 

 

 

 

 

 

Follow up actions

Insurers need to ensure that their sales process allows the consumer to make an informed choice about whether they need MLEI. Insurers need to strike the right balance between revenue generation and consumer need. The FCA expects that, as a result of criticism levelled in the report, the practice of “bundling” products will cease.

A balance must be struck between the quantity and quality of information provided to the consumer. An explanation of MLEI should:

  • Clearly state that the policy operates when the policyholder is not at fault for the accident;
  • Make clear that the recovery of uninsured losses is from the driver at fault for the accident;
  • Give appropriate prominence and explanation of the “reasonable prospect of success” test in the policy.

Insurers should also consider expanding the extent of MLEI policies to include providing cover for motoring prosecution defence and access to legal helplines.

Next steps

The FCA will look at the MLEI market again in one year to assess the extent to which insurers have improved their procedures.

Insurers that have not improved “are likely to face regulatory action”. Insurers that review and alter their procedures are expected to be able to give a clear account of the reasoning behind any decision, particularly if the changes are not consistent with the findings of the report.

For more, see:

ABI responds to findings of FCA's Thematic Review of Motor Legal Expenses Insurance (MLEI)


Last updated 01/07/2016