9 February: FCA Says Customers ‘Not Getting Fair Value’
Firms accounting for 80% of the Guaranteed Asset Protection (GAP) insurance market have agreed to pause sales of the product, following a request from the Financial Conduct Authority (FCA), writes Brean Horne.
GAP insurance is usually sold alongside car finance and covers a vehicle’s loss in value if it is stolen or written-off before the finance is repaid.
Brand new vehicles experience a steep fall in value as soon as they are sold. If they are then written-off, the owner thus receives significantly less from their insurer than they owe to their car finance provider.
If they bought the car using their own money, they will likewise see a gap between what they receive from their insurer and what they paid, leaving them unable to buy a like-for-like replacement.
The FCA believes the GAP insurance market is “failing to provide fair value to customers”.
Its research shows that only 6% of the amount customers pay in premiums for GAP insurance is paid out in claims, while in some cases 70% of the value of premiums was paid out in commission to third parties such as car dealerships involved in selling GAP policies.
As part of the agreement to pause sales, the firms have committed to make changes to their GAP products to provide better value for customers in line with FCA rules.
Under the FCA’s Consumer Duty regime, which came into effect in August last year and which…