The Financial Conduct Authority has just told AM it has “no intention of banning GAP Insurance”, in response to unsubstantiated reports that the product have to be scrapped this 12 months.
The insurance industry regulator has made its concerns concerning the sales practices around GAP insurance for several years, and recently warned that customers weren’t being given good value from GAP, also often called return to invoice (RTI) cover.
It is anxious that GAP insurance often earns high revenues for insurers and their dealers/brokers, but lower than £1 in every £10 spent by consumers on GAP is ever paid out to assist claimants, and it has warned the industry that it desired to see rapid changes to offer customers a good deal.
Since 2015 dealers were required to offer automobile buyers a ‘cooling off period’ before selling them GAP, since the FCA identified the dealers were benefitting from a major advantage at the purpose of sale reasonably than facilitating the client’s ability to buy around for value.
Dealerships had a 97% share of the GAP insurance sales at that time, and the overall value of the GAP insurance market in 2014 was estimated to be £244.8 million..
Today, an FCA spokesperson told AM, in a press release: “We’re disenchanted with the market’s response to our warnings to enhance the worth of GAP insurance for patrons. Now we have told firms to take immediate motion to point out how customers are getting a good deal or we’ll intervene.
“Now we have no intention of banning GAP insurance as a product line.”
Insurers have declined to speak openly about GAP. Some have already culled their GAP product.
Nevertheless one AM100 dealer, who preferred to not be named, told AM: “I actually think the product is one when it’s sold and priced in the correct way.”
Nevertheless, the dealer said he has not seen anyone volunteering to sell GAP in a different way, take a fresh take a look at the product or to have a look at selling it differently.
GAP providers are waiting to see what the FCA does.
The dealer said: “Nobody desires to sell something that has a whiff, a bit like PPI. I don’t think there’s anything improper with GAP as a product, I just think there’s an issue with the value and rate of commission.”
Some insurance firms could also be watching the FCA’s current review of historic motor finance discretionary commission agreements with interest, nevertheless, provided that up to now many dealers were allowed to sell their GAP policies at 60% to 70% profit margins.
That review was prompted by cases upheld by the Financial Ombudsman Service, which ruled some customers were unfairly treated since the dealer/broker could incfluence their very own profit earned from the product, without the client’s knowledge.
This Article First Appeared At www.am-online.com
