Insurers Agree to Pause Sales of GAP Over FCA Concerns

The FCA has announced that multiple insurance firms have agreed to suspend the sale of Guaranteed Asset Protection (GAP) insurance following a request from regulator.

The FCA has confirmed that 80% of GAP insurers have agreed to pause the sale of products and that, pending further engagement with the regulator on how to improve the value of the product, remaining firms have agreed not to take on new GAP distributors.

The news comes after the FCA wrote to GAP manufacturers in September and asked them to take immediate action to demonstrate that customers were receiving fair value from the product. The FCA was not satisfied with the response to the request, which has led to the pause in sales with these firms.   

GAP insurance is commonly sold alongside car finance and is designed to cover the gap that may emerge between the amount a customer pays for a vehicle, or owes on finance, and its current market value in the event of it being written off or stolen.

Concerns were raised as policies, which typically cost a few hundred pounds, appeared to deliver less value for consumers than car dealers, to whom they became highly lucrative due to high commissions received when selling the product alongside car finance agreements. 

The FCA’s latest fair value measures data revealed that only 6% of the amount customers paid in premiums for GAP was returned in claims, with the regulator claiming that it had seen instances of firms paying out 70% of the value of premiums in commissions to those involved in GAP policy sales. The FCA, however, has confirmed that it has no plan to ban GAP products outright.

Sheldon Mills, FCA Executive Director of Consumers and Competition, welcomed the agreement by GAP providers to pause sales, noting that “in its current form [GAP insurance] does not offer fair value and we want to see improvements.”

The FCA has expressed concerns over the design and sale of GAP insurance across all distribution channels and demands that firms make significant changes. The regulator has said that it is open to considering proposals for different distribution channels and acknowledges that some channels may be able to implement changes quicker than others. Mills continued: 'We will continue to work closely with firms as we carry out further engagement to resolve these issues and ensure customers are getting fair value products that meet their needs.'

The FCA’s intervention emphasises its commitment to enforcing the principles of the Consumer Duty, which has made it a regulatory requirement that firms provide fair value to customers, ensure products and services meet their needs, and provide quality customer services.

It is not the first time that the motor industry has been scrutinised of late. The FCA recently announced plans to investigate historic commission payments made to dealers for now-banned commission arrangements following a slew of consumer complaints. The FCA banned commission models that incentivised car finance brokers and dealers to increase consumer finance costs.

Whilst it remains to be seen whether pause in GAP sales will leave car buyers unable to get cover vulnerable to losses in the event of an accident or theft, with the used car market still facing significant challenges, those who benefitted from GAP commissions are likely to struggle to adapt to reduced margins.

About the author

Rebecca recently joined us in 2024 as a Senior Content Writer and has experience researching and creating multimedia content. With a keen interest in current and emerging industry affairs, Rebecca responds through a critical lens and, by promoting thought and discussion, aims to increase awareness of UKGI’s work.

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