The Financial Conduct Authority (FCA) is proposing changes to promote competition in the £160 million guaranteed asset protection (GAP) insurance market, including limiting the point of sale advantage for GAP sales made on the vehicle showroom floor and making it easier for consumers to shop around.
These proposals stem from the FCA’s first market study into general insurance add-ons, insurance products sold alongside another product. GAP insurance is usually offered alongside car sales. We found that consumers were often buying without having previously thought about the product or shopping around for alternatives and were not always getting the best deal.
Christopher Woolard, director of policy, risk and research at the FCA, said:
'Earlier this year we said that firms must put consumers’ interests first. It’s important that people are able to make informed decisions about whether they need GAP, and if they do, the best place to buy it. Today’s proposed rules are intended to help consumers from paying too much for a product that may not be offering good value for money.'
The FCA’s proposals aim to improve competition in the market and enable people to make more informed decisions. The key proposals are:
- a deferred opt-in or pause in the sale. A salesperson can start the sales process but can’t conclude the sale for a set time period, giving customers time to consider whether they need the product at all and to shop around if they do;
- a requirement for add-on GAP distributors to provide information that will encourage consumers to shop around, including by advising them that they can purchase the product elsewhere.
Add-on GAP insurance claims ratios from 2008 to 2012 averaged just 10 per cent, meaning only £10 in every £100 paid in premiums was actually paid out in claims. GAP add-on sales also account for an estimated annual overpayment of £76 million for every £108 million paid in premiums. These factors indicate that people are buying products that offer poor value for money. The FCA has also previously found:
- that distributors are enjoying a very strong position, with little competition at point of sale meaning that there is no pressure on sellers to reduce price;
- a lack of information, including about alternatives, preventing consumers from being able to compare products;
- a lack of consumer awareness that GAP insurance can be bought separately elsewhere.
The FCA is asking for feedback on its proposals by 13 March 2015. We intend for the new rules to come into force in September 2015.
Notes to editors
- Consultation paper: CP14/29 Guaranteed Asset Protection insurance[1]
- The FCA estimates that the total premiums paid for GAP insurance in 2012 equated to approximately £160 million.
- GAP insurance provides cover for the financial shortfall that can occur when a customer’s vehicle is written off or stolen and the settlement from the motor insurance pay-out is not sufficient to repay outstanding finance, replace the vehicle as new or replace it with one of equivalent value to the original price.
- In March 2014, the FCA published the results of its market study into general insurance add-on products[2]. This includes details of the claims ratios for add-on GAP insurance as well as the estimated overpayment
- On 1 April 2014, the FCA took over responsibility for consumer credit and the regulation of 50,000 consumer credit firms, including logbook lenders, payday lenders and debt management firms.
- On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA)
- Find out more information about the FCA[3]