Mobile phone insurance firms chastised by regulator
Better mobile phone protection promised after FCA finds some poor sales practises and customers struggling to claim.
Millions of people should now receive better protection from their mobile phone insurance after an investigation by the main City regulator uncovered examples of “unfair” terms, poor product design and inadequate complaints handling.
The Financial Conduct Authority (FCA) has ordered improvements to the cover that people receive, and revealed that one unnamed firm faces a sizeable fine next month for its poor complaints handling.
More than 10 million people have mobile phone insurance, and the UK market was valued at £620m in 2012. However, the policies have long been controversial – in 2010, consumer organisation Which? ranked the insurance as number one in its top 10 “useless financial products that you don’t need”. The cover can cost £150 a year or more for pricier smartphones, and is often included as a benefit with fee-paying “packaged” current accounts.
The FCA reviewed the practices of nine unnamed firms that between them have a majority share of the market, following concern that some customers were struggling to make successful claims on their insurance.
Real-life examples of companies not treating their customers fairly included one where a woman had her claim rejected because she left her phone in a hotel room, which was deemed to be a “public place” as soon as she had checked out and therefore was excluded from cover.
The review found that:
• Some terms and conditions were “unclear and unfair”. For example, terms stating that an individual would not be covered for loss or theft in “a public place”, or “a place which is easily accessible by people you do not know”, were broad and open to interpretation. “In practice, we saw these terms interpreted to include hotel rooms, taxis and workplaces,” said the FCA.
• Some sales practices were poor. Examples included in-store documents that were not clear, and the practice of automatically adding on insurance when selling phones online.
• In some instances, claims handling was “slow and unfair”. In one firm, up to 70% of customers who appealed had their original decision overturned and ended up receiving a payout. Another was declining 41% of all claims received for theft.
• Some firms were not following the official complaints handling rules. For example, some companies only allowed customers to complain in writing about a decision to reject their claim, whereas the FCA’s rules require firms to allow complaints “by any reasonable means”.
“Claiming should not be difficult, and terms and conditions should not be so unclear that it is virtually impossible, in some cases, to make a successful claim,” said the regulator.
The companies are now making improvements, said the FCA. Firms have committed to review their terms to ensure they are clear and fair, for example, some have agreed to remove phrases such as “public place”. The companies also told the FCA that they intend to provide cover where a customer accidentally leaves their phone somewhere.
In addition, the firms have made in-store documents clearer and have ensured that customers have to “opt in” to the insurance when buying a phone online.
Improvements have also been made to claims and complaints handling processes.
The main sellers of the insurance include the major mobile phone networks such as Vodafone and O2. In the case of Vodafone policies start at £2.99 a month for basic cover, rising to £12.99 a month for comprehensive cover for the latest high-end smartphone, while O2’s priciest policy is £12.50 a month for iPhone “Premier” cover.
Responding to the announcement, Which? executive director Richard Lloyd said: “This report from the Financial Conduct Authority exposes poor practice at every stage of the consumer journey … Mobile phone insurance could be a good idea for those with a valuable handset, but the industry needs to show real improvement before consumers can have full confidence in the product.”
Lloyd said anyone who wanted cover should shop around as well as checking their home insurance policy, as it may offer the same cover at a lower price.