12 December 2022

Home Insurance Add-ons and the Consumer Duty

Robert Sheargold

By Robert Sheargold

The introduction of the Financial Conduct Authority’s (FCA) Consumer Duty is an opportunity for providers to rethink how home insurance add-ons are designed and sold.

The FCA’s Consumer Duty requires firms to place the customer at the heart of product design. The goal of the Duty is to ensure that products are designed to allow consumers to pursue their financial objectives and to avoid any foreseeable harm.

One of the biggest challenges in the insurance market in general, and the home insurance sector in particular, is the volume of information that customers need to process before they can make an informed decision on a product.

This challenge is made more difficult by the proliferation of home insurance add-ons, which are complex products that are generally difficult to fully understand and are not always appropriate for their target markets.

The risk of information overload

The aim for consumers when taking out home insurance is to cover their contents and buildings for a reasonable price.

When buying home insurance, however, most consumers are now faced with a dizzying array of add-ons and upgrades, such as:

  • Accidental cover
  • Matching items cover
  • Bicycle cover
  • Student cover
  • Garden cover
  • Home emergency cover
  • Personal possessions cover
  • Legal services cover

In theory, this modular design allows customers to find the right level of cover, weighing the benefits of various add-ons against the price. Its unintended side-effect, though, is to create more confusion through information overload.

There is a risk that by offering multiple add-ons, customers are prevented from pursuing their financial objectives because they have to digest too much information, and so can’t make an informed and considered decision.

Target audiences

Recent FCA claims data shows that add-on services have a lower average claims cost as a proportion of premiums, compared to the corresponding standalone product, as seen from the table below.

Legal services cover has a particularly low claims frequency of only 0.16%, highlighting how little is claimed on this obscure type of insurance cover.

In addition to having low claim rates, legal cover has very little in common with standard home insurance, as can be seen by the list of things covered by a legal cover add-on:

  • Personal accidents and injuries
  • Clinical Negligence
  • Work Disputes
  • Jury Service
  • Tax investigation

None of these covers are related to protecting your home’s contents or buildings. All, except for personal accidents and injuries, do not even take place within the boundary of your property, making them tangential at best.

This raises questions over whether people buying standard home insurance are the right target audience for legal cover, something that is especially important in light of the Consumer Duty’s focus on products being marketed to an appropriate target audience.


Failure to prune irrelevant add-ons could be seen as a fault under the new Consumer Duty for two reasons.

First, because it obstructs customers in pursuing their financial objectives by giving them too much information, forcing them to spend more time reading irrelevant information and making it harder for them to make an informed decision.

Second, because it risks presenting customers with inappropriate products that are unlikely to be relevant to their needs.

If firms are to evidence that their products have been designed around customer needs they must first robustly review the way they are packaging their products and ask one simple question - Is this add-on relevant to my target audience?

Fairer Finance has a range of tools and services to help firms meet the requirements of the consumer duty. For more information contact corporate@fairerfinance.com