The Financial Services Authority (FSA) has proposed tougher new rules for those selling insurance as part of packaged bank accounts in a recent consultation paper (CP11/20).

Such packaged accounts commonly consist of a current account sold with a bundle of other financial products, which may include insurance policies. Such accounts have proved popular in recent years, with the FSA estimating that one in five UK adults uses one.

The FSA has considered that there is a risk of consumer detriment where a consumer finds it difficult to make informed decisions about the options available. This could result in a consumer paying for a service for which they have no need, or for which they would be ineligible.

The FSA proposals aim to help consumers to be sufficiently informed of the complex packaged product which they are entering into, thereby reducing the chance of a consumer relying on a policy which they are ineligible to claim against.

The proposed rule changes, if implemented, would create two core obligations on firms operating in this market. First, firms would be obliged to take reasonable steps, at the point of sale, to establish whether a customer is eligible to claim the benefits of each policy included in the package.

Second, firms would be placed under a continuing obligation to provide customers with an annual eligibility statement. Such a statement would set out any qualifying requirements to claiming benefits and recommend that customers review their circumstances.

Responses to the consultation are requested by 27 January 2012, following which the FSA expects to issue a Policy Statement in July 2012.

For the full text of the FSA Consultation Paper, please click here.