In Superman III, Richard Pryor’s character Gus Gorman discovers a way to get rich quick: he skims all of the half-cents paid to the staff in the company he works for into an account for his own benefit. The simple tactic rests on the belief that because the amounts of money are so small, the individuals will not see them going.
Martyn James from consumer help website Resolver uses the strategy from the 1983 film as a comparison for a growing area in the insurance industry – “bolt-on” or “add-on” policies which cost little, can provide minimal cover, yet are hugely profitable for the companies involved. The last few years have seen an increase in those that cover lost car keys, cancelled gigs, missing internet shopping deliveries and cover for identity fraud, among many others.
“All industries evolve, and the insurance industry is evolving as well. One of the ways they are maximising their profits is by introducing smaller policies that are low value. They could be £3, they could be a tenner but they are routinely added to things – when you buy tickets, when you buy individual items online and also when you buy cars,” says James.
“The theory is the fact that they are low value and you don’t think too much about saying ‘yes’, so take-up is much higher. But they are often very poorly written and don’t provide many worthwhile guarantees or peace of mind when you look at the small print.”
Concert cover to identity theft
The range of areas covered by bolt-ons is wide. There is insurance in case a concert is cancelled, a delivery that has been ordered does not arrive, alloy wheels are damaged or for each individual gadget in the home.
Often they can be sold at the last minute – by a car insurance salesperson offering tyre insurance as the policy is being settled, or a box appearing in the final stage of the process to buy a concert ticket offering cover if the event is cancelled.
Typically the cost will be low, so the consumer thinks “What is the harm?” But with thousands of people signing up to small amounts, the vast majority of which will not be claimed on, the income for the industry is substantial.
Knowing your cover
The first thing to consider is whether you are already covered for the insurance being offered. A cancelled concert would generally be covered by consumer rights laws. A service contract, or a guarantee with goods, may provide cover for accidents or breakage.
Card-loss insurance is not needed because banks will deal with any fraud attempts and replacements as a matter of course.
“Before buying insurance add-ons, customers should carefully consider if they really need the cover the policy provides, and if it replicates cover they already have. A good example is gadget insurance, which may be redundant if personal possessions are covered on a home insurance policy,” explains Harry Rose of Which?
The Financial Conduct Authority (FCA) found in a study on add-ons that consumers often ended up with products there were poor quality and not what they needed.
Step back and think
When buying a gadget like an iPad, insurance offered will almost certainly be more expensive than if a consumer were to go online afterwards and get one policy for all of their devices. “You don’t need to buy insurance at the point of sale under any circumstances, so just because it is there, and just because there is a box to tick and you feel that you would be foolish not to do so, don’t do it there and then.
“Afterwards, have a think about it and see if you are covered for things under existing insurance policies: and if you are not, consider getting a policy on the open market that might cover a number of things,” adds James.
Cover exists in case of identity fraud and has been dubbed a “paranoid insurance”, as the problem is not common. Martin Lewis’s Moneysavingexpert website states that the cover is not necessary, saying you will be covered by the banks unless you are culpable.
But why are bolt-ons there?
Some insurance companies will sell policies to cover the loss of a key, others will cover dents and burst tyres. But why are such problems simply not covered in a regular policy? “They have hived off anything that is not essential and billing you as part of that policy. There is no reason for that to happen,” says James.
The insurance industry claims the variety of types of insurance is about choice, not the generation of income. “Insurance add-ons can offer customers wider protection to meet their individual needs. People should always consider the value to them of any additional cover being offered, so that they can make an informed decision about whether or not to buy,” says the Association of British Insurers (ABI).
If you buy, make sure you are covered
If you do buy a bolt-on, ensure it is for what you need. Some contracts can have a lengthy list of exceptions or events not included.
James recently dealt with a policy for package delivery which excluded 50 different types of goods – including the one that was being sent.
Because the policies are relatively low cost, many people don’t question them and the number of complaints are low because the amount of money involved in the claim is small.
It can also lead to the same cover being repeatedly bought, such as when someone upgrades their phone and buys a new policy with each one – resulting in a series of policies all being paid for at the same time.
What you should check …
• Don’t ever buy insurance at the point of sale just because it is offered.
• Check your existing policies to see whether you are covered already.
• If you are considering buying, make sure that you are actually covered for what you need. Many policies have a long list of exclusions.
• Check whether you are covered already by a guarantee or consumer rights laws.
• Buying gadget insurance for one device will probably be much more expensive than buying it for all gadgets.
