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FCA gives firms the green light to resume selling GAP insurance


The UK financial watchdog has moved to allow a ‘significant’ number of firms to resume offering Guaranteed Asset Protection (GAP) insurance, following its action to improve fair value for customers.  

GAP insurance is typically sold alongside car finance and covers the difference between a vehicle’s purchase price or outstanding finance and its current market value, in the event it is written off before finance has been repaid.

An original March 31 deadline given by the the FCA was extended in April by a month to give it sufficient time to review all online providers’ fair value submissions. 

The Financial Conduct Authority (FCA) said that once firms can demonstrate that their GAP products provide fair value to customers in line with its rules, they can restart selling the insurance product. 

Historically GAP insurance, also known as return-to-invoice (RTI) insurance, had been a high margin add-on product for motor retailers at the point of sale.

In its latest announcement, the FCA noted that products are now being sold at ‘materially lower levels of commission being paid out to those selling GAP, improving value for customers’, adding that customer would also receive better outcomes.

Read our in-depth insight: Has the GAP treasure chest closed?  

Sheldon Mills, executive director of consumers and competition at the FCA, said: “We took action when our data showed that customers were not getting a fair deal.  

“I’m pleased that, following constructive engagement with industry, a significant proportion of the market is now able to restart sales.  

2024 am spotlight on finance and insurance report cover with sponsors“GAP insurance can provide a useful service to customers and we continue to work with the rest of the market to address our concerns.” 

In February the FCA announced that multiple insurance firms had agreed to pause sales of GAP insurance, following a request from the regulator. This was followed by a second tranche of engagement in March with the rest of the market  

In 2022, according to the FCA’s value measures data, there were over 2.4 million GAP policies in force.  

It said that this data showed that in 2022 only 6% of the amount customers paid in premiums for GAP insurance was paid out in the claims, with some firms paying out as much as 70% of the value of insurance premiums in commission to parties involved in selling GAP insurance.  

The FCA said it will continue to study the remaining firms’ proposals to improve value for customers.

Previous actions taken by the FCA last decade, including a forced delay at the point of sale, led to a drop in the volume of GAP policies being sold by dealers.

 



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