Insurance regulator Financial Services Authority worries that banks may try to boost their incomes by selling unsuitable insurance products to consumers.
The FSA is particularly concerned about the rise of packaged accounts, where customers pay a fee for bank services with limited insurance. It worries that these products may not sufficiently consider customers' needs.
The regulator says, "Banks are developing their strategies to find new sources of non-interest income. While we have classified this as a potential concern, evidence of misconduct is starting to emerge from some firms in some of these areas, although not yet in a widespread, systemic way."
The FSA is concerned that banks may try to develop new insurance products to be sold alongside credit to replace controversial payment protection insurance, and try to sell more products, such as packaged accounts, that charge a fee in exchange for additional features. The regulator says that a quarter of all current account customers now have packaged accounts, which offer extra services, such as free travel insurance.
But it says that while these accounts may offer value-for-money for some consumers, others could be better off purchasing products individually, or not at all. In other cases, people may find that the insurance products do not offer the level of cover they expected- and will only find this out when they try to make a claim.