Reference Case Number: FOI11779
Freedom of Information: Right to know request:
Following the pause in Gap Insurance sales in February of this year, I am interested to hear how the FCA's recent statement (made by its Mr Sheldon Mills) estimates that a £70m consumer saving was expected as a result of its review.
Could you please tell me more about each individual assumption and estimate that came together to provide this published estimation.
FCA response:
In his speech of 31 July 2024: https://landmark-phase.live/news/speeches/taking-leap-consumer-duty%3Cspan class="print-footnote">[1] Sheldon Mills noted that the anticipated changes by firms to improve the value of GAP insurance products will save customers around £70 million.
As Sheldon mentioned in his speech, this figure was based on certain assumptions.
Our value measures data for 2022[2] reported the following numbers for GAP insurance.
| Product | Total retail premiums (written) | % of premiums paid out in claims |
|---|---|---|
| GAP (add-on) | £74,726,828 | 4.37% |
| GAP (stand-alone) | £233,690,641 | 6.87% |
| Total | £308,417,469 | 6.26% |
Therefore, the total written retail premiums for 2022 was £308.4 million and the percentage of premiums paid out across both add-on and stand-alone products in claims averaged 6.26%.
Assuming that the FCA’s GAP intervention will ultimately result in moving the percentage of premiums paid out in claims from 6.26% to around 30%, this would produce an improvement in value to consumers of 23.74%.
Based on 2022’s written retail premiums of £308.4 million, a 23.74% improvement in value equates to £73.2 million in paid claims, which was rounded down to the figure of £70 million quoted in Sheldon’s speech.
Bearing in mind the average duration of a GAP insurance policy is around 36 months, it will take time for the improvement in value to be reflected in our value measures data.