Financial Conduct Authority proposes GAP insurance sales changes


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A financial watchdog is proposing changes to the way that Guaranteed Asset Protection (GAP) insurance is sold from September 2015.

The Financial Conduct Authority (FCA) wants to promote greater competition in the market – worth an estimated £160m -with consumers not always getting the best deal available.

GAP insurance is an add-on to ordinary car insurance, which will pay out the gap between a vehicle’s purchase price and its market value at the time it is written off or stolen.

There are more than a million GAP insurance policies in force but the FCA said just 10 per cent of premiums end up being paid out as claims.

The key proposals are:

  • a deferred opt-in or pause in the sale. A salesperson can start the sales process but cannot 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.

GAP add-on sales account for an estimated annual overpayment of £76m for every £108m paid in premiums and that these factors indicate that people are buying products that offer poor value for money.

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.

“The proposed rules are intended to help consumers from paying too much for a product that may not be offering good value for money.”

Previous findings by the FCA include:

  • 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 13th March 2015 with the intention for the new rules to come into force in September 2015.

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