• Doing business with the FSA
  • Being regulated
    • Financial promotions
      • Thematic reviews

The FSA has recently conducted a review of the press advertising of the leading firms selling motor, home and travel insurance that make price/savings claims ('savings claims promotions').

Our concerns

We were concerned that too many promotions that claimed "we have the lowest premiums" or "we will beat your existing premiums or give you £25" were setting expectations that would not be met when consumers came to contact firms to get an actual quote.

GI advertisements are misleading if they use statistical sampling to give the impression that most people are eligible for savings, when in reality only a few are. They are also unclear when they fail to set out the basis on which savings claims can be made, as the consumer is denied the opportunity of assessing how likely they are to make the same saving.

Although the general insurance sector consists of lower risk products, we are concerned that acting on the basis of 'savings claim' promotions consumers will suffer detriment by being induced into contacting and buying from companies on a misleading basis. We are also concerned about the potential cumulative effect of high volumes of misleading promotions. If consumers' expectations are repeatedly raised by promotions only to be disappointed when they come to get a quote, consumers may lose faith in promotions and the firms communicating them.

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Our requirements

The requirement that communication with customers should be 'clear, fair and not misleading' is one of the FSA's 11 Principles for Businesses and the same requirement naturally applies to all financial promotions. We do not want to stifle the use of savings claim promotions. But we do want to see promotions setting accurate expectations and therefore being useful for consumers, since consumers use promotions to decide which insurers to contact.

In order for promotions to be clear, fair and not misleading, there should be no mismatch between the general impression created by the promotion and the experience the consumer has when responding to the promotion. Promotions may be unclear, unfair or misleading where:

• They give the impression that most customers will be eligible for the price / saving, when the price/saving is not representative of the target audience of the promotion:
  For example, generally a home insurance savings claim based on risks sampled in North West Scotland is of no use to recipients of advertising material limited to South East England.
• Contrary to the overall impression of the promotion, only a small proportion of customers likely to respond to the promotion will receive the claimed price or saving:
  For example, the claim "Save up to £160 on your home insurance" could mislead the target audience if only 10% of applicants are expected to qualify for the saving.
• The promotion does not prominently set out the basis on which the price / saving is to be achieved:
  For example, "we have the cheapest motor insurance" will not help consumers judge whether it is worth contacting the insurer for a quote. Promotions that include the basis of the claim give the consumer a much better sense of whether or not they are likely to qualify for the price / saving.

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Next steps for firms

In August 2006 we reported that we had seen only limited improvements in GI financial promotions and said that we expected firms to take a critical look at their promotions and systems and to take action to improve. We had already communicated our concerns about savings claims promotions in two specific industry bulletins in August 2005 and March 2006. The fact that so many savings claim promotions are failing to meet our requirements after almost two years of the ICOB regime, and after this level of communication, is highly unsatisfactory and we expect to see considerable improvement in savings claim promotions as a result of this most recent review.

Our more principles-based approach to financial regulation gives firms the flexibility to determine how best to align good business practice with good regulatory outcomes. Senior management teams naturally play a more central role in this type of regulation, and for this reason we have addressed our current concerns to the senior management of the leading firms (by advertising spend and insurance business written) where we found problems in savings claim promotions. We have asked them to take urgent action to improve standards or face further regulatory action.

We have liaised both with the Association of British Insurers (ABI) and the Advertising Standards Authority (ASA), as well as with key stakeholders in the consumer research industry who support firms in their savings claims in issuing this statement. The ABI have agreed to put the discussion of GI financial promotions onto their industry steering group agenda as a regular item.

We expect firms to review their current promotions and decide what action, if any, they need to take. Firms should note that where they conclude that their promotional material is not clear, fair and not misleading they should withdraw or amend the promotion. We will keep GI advertising under close watch and will take appropriate regulatory action against firms where appropriate. We will repeat our sector-wide review in three months' time.

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Issues firms may wish to consider

Is there a mismatch between the general impression created by the promotion and the experience of the target customer?

• Where the advertised premium is more expensive than the industry average is a savings claim valid at all - or is it misleading?
• To better match the overall impression of the promotion to the experience of the target customer, has the firm considered indicating in the promotion any criteria the customer would need to satisfy in order to be eligible for the claimed price/saving?
• In travel insurance promotions, has the promotion clearly identified which policy (e.g. European, Worldwide) the price or savings claim relates to?
• When making comparisons with insurance offered by competitors, does the promotion compare contracts meeting the same needs or intended for the same purpose (i.e. provide a like-for-like comparison), or are there significant discrepancies between the policies being compared which might invalidate the comparisons or require significant qualifications? Care should be taken where, for instance, additional features may be included in a policy as standard by some firms (e.g. a courtesy car, or legal cover).
• Are savings or premiums claims sufficiently up-to-date in a market where premiums can change frequently?
• Is the use of imagery consistent with the price/premium and policy referred to in the promotion?

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Is the price/savings claim referred to in the promotion representative of what the target customer is likely to benefit from?

• If consumers were surveyed by the firm to arrive at a premium, is the premium referred to in the promotion consistent with the premium the audience is likely to be charged?
• Does the promotion make clear any significant, identifiable groups of consumers in the audience for the promotion who will not benefit from the savings or premiums quoted?
• When only a small portion of customers likely to respond to the promotion will receive the claimed price / saving, is this consistent with the overall impression created by the promotion? Claims that consumers could or will make a saving from or up to a certain amount are often based on research in which x% of the target audience were found to be entitled to that price or saving (for example, the ASA's "10%" rule of thumb ). Although firms are free to base their claims on research indicating that x% will get that saving, firms should always ensure that the overall impression of the promotion is that the price / saving on offer is only likely to be available to a small proportion (or that specified percentage) of respondents.

Does the promotion outline with sufficient clarity the basis on which such saving is to be achieved, with equal prominence to the savings claim?

• Where the basis makes no reference to the risks that are insured, could the research be meaningless to a consumer wanting to know how closely their individual risk profile is to the profile eligible for the price / saving?

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