How Does Selling Insurance As an Add-On Affect Consumer Decisions? A Practical Application of Behavioural Experiments in Financial Regulation

The Occasional Paper on behavioural economics published by the Financial Conduct Authority (FCA) in April 2013 concluded that the effective regulation of retail financial markets requires a deeper and more realistic understanding of how consumers behave and what choices they find particularly difficult.Over the past year, the FCA has made considerable progress in embedding behavioural economics in its regulatory practice. For instance, more sophisticated analysis of consumer behaviour is being used to help identify problems in markets, design policy interventions, and analyse drivers of market outcomes. More practical results of this work will emerge over time - for example, in market studies conducted in pursuit of the FCA's objective to promote effective competition in the interests of consumers.Practical behavioural analysis needs to be grounded in good empirical evidence on how consumers actually make decisions. This is particularly important for identifying the underlying drivers of consumer behaviour that in turn lead to poor market outcomes – for example, features of the market that might impede consumers' ability to drive effective competition. Regulators need this understanding to be able to target the root causes of problems, rather than tackle symptoms. This granular investigation of consumer behaviour often requires more complex behavioural research techniques, which have not traditionally been in the regulators' analytical toolkit