The newly formed Financial Conduct Authority have announced that following the PPI mis-selling fiasco they will be seeking to ensure that certain insurance products, particularly those that are sold as an add-on or bolt-on to a basic policy, are fully reviewed.
One such product that is in the FCA’s cross hairs is Motor Legal Expenses Insurance.
Preliminary investigations have found out that the majority of the public either do not know what this insurance covers or do not know whether they have it or not.
Many of those who have bought the cover as an add-on to their car insurance, believe it covers them for something that it doesn’t.
So just what is Motor Legal Expenses Insurance (MLEI) and what does it cover?
The first point of confusion, not dissimilar to PPI, is the name of the cover itself. MLEI is sold under a variety of names including Legal Assistance Plan, Legal Protection, Drivers Legal Protection, Legal Assistance, Motor Legal Cover, Uninsured Loss Recovery and ULR cover.
The FCA believe that this diversity of names and labels, and the connotations they carry, is likely to fuel consumer misunderstanding of the product.
More worryingly in the FCA preliminary survey, 81% of those who had bought MLEI did not know what it covered and thought, incorrectly, that the policy would pay any legal costs associated with a motor accident if they were at fault for the accident.
78% incorrectly thought that MLEI would pay the costs of defending them if they were sued by another driver.
For clarity, MLEI covers the legal costs of recovery for drivers who were not at fault. The main car insurance policy provides cover against all liabilities where the driver is at fault.
This core cover is the basis of third party liability cover which is legally required as defined by the Road Traffic Act. Basic car insurance protects others from damage or loss incurred as a result of the actions of the policyholder, incredibly, it does not cover losses incurred as the result of the actions of others.
Comprehensive cover includes basic statutory third party liability cover, fire and theft losses and damage to the vehicle caused by the driver himself, not others!
MLEI only covers the costs of legal recovery of losses which are not insured under the basic policy, that is those losses that were incurred when an accident was not the drivers fault.
Typically these include expenses such as injury losses, excess recovery or temporary replacement vehicle charges. Claims will only be pursued by insurers and solicitors where there is a reasonable chance of success and the FCA is also concerned that this is not fully explained to the policyholder.
Most policies being add-ons are operated by a separate company which may dissuade the potential buyer to buy the product or not be properly explained by the seller. Car-Insurance.tv believes Motor Legal Expenses should be an integral part of any motor insurance policy and agrees with the FCA conclusion that the default opt out approach is preferable when providing online quotes.
You can read all the preliminary findings from the FCA who will produce a full report on MLEI later this year.
For Motor Legal Expenses advice and quotes and cover for every type of car insurance, call us on 0800 089 0182