Beware Banks selling bundled products and block policies.

The bank bail out by tax payers and the mis-selling scandals we have witnessed have resulted in no change to the banks philosophy or  behavior which would protect consumers from a repeat of the unfair, deceptive or abusive selling practices that happened in the past.

Customers were historically loyal to their banks but it wasn’t until the European Banking industry adopted a set of common principals for bank account switching that it made it easier for captive customers to move.  Some would argue that it was only then that customers were given the freedom to move. 

Your bank has concluded the most important aspect of how they do business with their customers today is to concentrate on their acquisition strategies and they way in which they harvest their customers.  Apparently nothing has been learnt from the selling of inappropriate products or the rewards paid to sales staff relating to their flawed culture and dysfunctional selling procedures. 

The main reasons customers change banks is price, dissatisfaction of service and products and a lack of trust. Profitable people moved away from banks by purchasing other products from different providers. Now your financial institution has had to go back to basics and concentrate on simpler easier to understand products and concentrate on ways to improve attrition by developing ‘product bundles’. Without behavioral changes, sales staff are incentivized to encourage the selling of these bundles and to reward keeping the business on the books.

An example of a product bundle would be to have your mortgage repayment, house insurance and mortgage protection all bundled up into one convenient direct debit. Because there is one direct debit the hope is as time goes by you’ll forget how much you are paying for each product and you’ll be less likely to shop around and more likely to remain loyal. Giving you an incentive of something for free conveniently ignores the bigger picture.

Product bundles can also work against the consumer in that the consumer doesn’t actually hold the policy because they have bought what is called a ‘block policy’. Block policies are not transferable in the future so if your lender becomes uncompetitive and you want to move to another financial institution you may find you can’t because the policy isn’t portable – you have been sold a block policy.

The Consumer Credit Act, 1995, gives you the right to choose your own Mortgage Protection Insurance policy. It gives you the right to shop around for your own cover. It effectively encourages competition amongst lenders, amongst insurers, amongst sales persons.

Banks don’t mind losing unprofitable customers but your local bank now wants to concentrate on maximizing their profitability on selected individuals by continuing with a selling culture that puts pressure on staff to sell to customers at every opportunity in order to meet sales targets.