More information needs to be provided to consumers when buying gadget insurance – Central Bank inspection

• On-site inspections at insurance firms providing gadget insurance to over 80 per cent of the market.

• Findings show firms need to provide clear and understandable information to consumers on the product being sold, the cost and how to make a claim.

• Central Bank research shows that one in five consumers do not cancel previous policies after taking out a new gadget insurance policy.

The Central Bank has published the outcome of a thematic inspection of the sale of gadget insurance to consumers. Mobile phone insurance is the most common type of gadget insurance and is generally sold to consumers as an add-on when they are buying a new phone.

Three insurance firms were inspected, which account for over 80 per cent of the market in Ireland. These firms sell gadget insurance through brokers and retailers. The inspection was supported by the Central Bank’s consumer research, which examined consumers’ attitudes, behaviours and experiences when buying gadget insurance.

The inspection found that, in certain circumstances, product information provided to consumers was inadequate. Manufacturers and distributors of gadget insurance need to do more to ensure that consumers are made aware of the key product features, benefits, exclusions, how to make a claim, and the total cost of the product.

Commenting on the findings, the Director of Consumer Protection, Gráinne McEvoy said:

“With the Christmas shopping period well underway, many people will be making practical decisions to buy gadget insurance for their new phones. Our inspections and consumer research show that there is a gap between what most consumers believe their gadget insurance covers and what it actually covers.

As many consumers buy this type of insurance as an add-on when buying a new mobile phone, it is really important for sellers to ensure that the product they sell meets the consumer’s individual needs. Sellers of gadget insurance must also be very clear to consumers about the product terms, cost, conditions and limitations and inform consumers that they have a cooling off period if they subsequently decide that they do not want to keep the insurance product.”

The main findings of the thematic inspection and research are:

• Inadequate information is provided to consumers at the point of sale and during the life of their policy, which can be up to five years. The Central Bank expects firms to provide an annual statement to consumers detailing their policy, including benefits/exclusions, premium details and how to make a claim.
• Central Bank research shows that 21 per cent of consumers do not cancel existing policies after taking out a new gadget insurance policy. On doing so, they are paying for cover they no longer need and can be paying ‘on the double’. Sellers of gadget insurance are required to consider any relevant existing insurance cover when recommending a new policy to a consumer.
• The overall price of gadget insurance is not clearly presented to consumers. Insurance firms are expected to provide additional information on price to empower consumers to make informed choices.
• Claims acceptance rates on gadget insurance are high, at an average of 91.6 per cent across the firms inspected.
• A number of recurring reasons for declined claims were identified, the most common being where consumers had not reported the loss or theft of the handset to their mobile phone provider, the Gardaí (where required) and to the insurer within the timeframes specified in the policy terms and conditions; or did not supply the insurance firm with all information and evidence required, in order for the insurance firm to verify the validity of the claim. Firms are required to ensure the documentation issued to consumers, at point of sale and thereafter, is clear around how to make a claim.

The findings of this thematic inspection and consumer research are supported by the conclusions reached in a recent ESRI international literature study, which was funded by the Central Bank. Published on 16 October 2018, the study examined the extent to which certain financial product features negatively affect consumer decisions. Findings from this study highlight that consumers often agree to add-on insurance at the point of sale due to emotional and situational factors that can prompt decision fatigue. This limits a consumer’s ability to fully understand the terms and conditions, for example if an excess applies, and the overall cost of the insurance.