The FSA has asked for responses to a discussion paper they recently published in relation to “added value accounts”, also known as packaged accounts, which banks offer to their customers. This follows on from their various crusades in calling banks to account and they are hoping to prevent, what they believe, may be another misselling scandal like PPI.
The FSA believe there is a systematic problem in banks where these accounts are sold without adequately checking the customer’s individual eligibility for each of the various insurance products which are bundled within the account.
I have worked in a retail bank where my job was to look after the marketing and P & L of the packaged accounts. I know how they work and their importance to the overall current account book. Staff are incentivised to sell them, many customer do not use all of the benefits (especially the lifestyle elements like hotel booking) and the banks are able to use their scale to get excellent wholesale prices for the insurance products.
Given this, I have chosen to have a packaged bank account for about 10 years. I pay £150 a year for a worldwide travel policy for myself and my family, an interest free overdraft buffer and mobile phone insurance. I haven’t used the other products, benefits and features yet. And I am more than happy with that because I derive value from the account in a way the FSA does not account for in their proposals. They choose to look at value in a populist, political, one dimensional way, when in fact we live in a multi-dimensional world. Below is what I value from my packaged bank account:
- Things in one place
- No extra insurers or parties to deal with
- Less paperwork in my life
- Fewer financial decisions to make
- From a familiar, trusted provider
- No additional mail coming through my letter box from other insurers
One of the FSA’s recommendations is that banks should send an annual eligibility statement to customers for them to check whether the insurance products they have in their account are still appropriate for their circumstances. In other words, for me, a useless piece of paper asking me to consider useless questions.
I could, if I chose, take the time to research, think about, ensure my eligibility, negotiate and purchase the various insurance products with separate providers. I might even get a price for each that I am happy with and balances out the additional admin, mail through my door, thinking time and decision making which is the cost I would need to pay.
Alternatively I can keep my account and know that what I want is taken care of. And instead of spending my time on an administrative and emotional time sink, I can instead go to the park with my 3 year old and watch his smile as he goes down the slide. That’s value to me.
Posted by Ajai Ranawat
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