It’s a 12 months for the reason that FCA’s investigation into GAP insurance, casting light on the character of the motor finance industry. But GAP is back on the table and motor retailers could make strides to re-build revenue, writes Duncan McClure Fisher.
A 12 months on, and the motor finance industry is starting to bounce back after last 12 months’s Guaranteed Asset Protection (GAP) Insurance Financial Conduct Authority (FCA) investigation. The pause on sales of GAP left each businesses and consumers in a difficult position. Motor insurance firms, brokers and dealers lost vital revenue streams when the FCA froze sales of GAP products.
This included Intelligent Motoring, which also felt the pinch when it stopped selling GAP insurance direct to consumers via MotorEasy and thru third-party providers. Meanwhile, consumers were left and not using a product designed to offer peace of mind within the event of a complete loss.
Because the FCA allows providers back into the market, how can motor dealerships press forward? Despite GAP Insurance now back firmly on the shopper propositions table for retailers, Intelligent Motoring estimates that 90% of dealers will not be benefiting from the shopper loyalty and value-add opportunities it brings. Has the FCA investigation left motor retailers with cold feet?
On the outset, the FCA announced that multiple insurance firms, representing around 80% of the market, would want to pause GAP sales. Its investigation then revealed some interesting figures.
In accordance with the FCA’s evaluation, only 6% of the premiums paid by customers for GAP Insurance, were returned in claims, with some firms allocating as much as 70% of premium income to commissions for parties involved in selling GAP policies.
It was these headline figures that prompted the alarm to be raised by the FCA, whose principle is to ‘act to deliver good outcomes to retail customers’ under Consumer Duty.
In Defence
Rightly, the industry sought to defend itself, questioning the FCA’s data, saying that using one 12 months’s data was not a good representation of the GAP market and the post-Covid era meant minimal depreciation of vehicles, skewing the figures unfairly.
Some argued that the GAP Insurance providers were treated harshly, to provide an example to all financial providers, of the facility the FCA has in its investigative arsenal.
Either way, your complete furore left customers and dealerships on the lookout for alternatives. While GAP sales were paused, adept dealerships offered alternative financial products that provide similar protection to GAP insurance, but with improved value propositions.
Meanwhile, others filled their gaping revenue stream with branded insurance solutions to assist protect their customers, including cosmetic insurance, tyre insurance, battery insurance and insured breakdown recovery.
There’s little doubt that the FCA’s GAP Insurance investigation dealt some substantial repercussions. The results of the probe, nonetheless, ultimately forced the motor retail industry to exhibit a substantial and impressive agility to survive.
It also resulted in revised sales practices, enhanced transparency in commission disclosures, and ultimately ensured that the financial products offered by motor retailers now provide even higher value to consumers.
Meanwhile, it showcased how, when put under the cosh, astute motor retailers will move mountains to seek out the appropriate solutions for his or her customers.
Fresh Demand
Thankfully, careful pricing, effective compliance measures, and efficient integration into the sales process, implies that many providers are actually successfully implementing a GAP insurance programme into their sales over again.
Indeed, Intelligent Motoring was one among the primary and like others, we found that there was fresh demand from consumers for GAP insurance, some claiming they’d been holding out on their next vehicle purchase until it was available again.
And the financial peace of mind that GAP brings has quickly been recognised by consumers, with a return to increased payouts as vehicle values normalised post-Covid and residuals began falling on electric vehicles. It’s not unusual for claim payouts today to exceed £20,000 and even £30,000.
Yet, with just 10 % of dealers promoting GAP to their customers, many are still missing out. After all, some insurers have increased net rates while capping the retail premium that dealers can charge, making the proposition less attractive.
Nevertheless, motor retailers who display the agility they demonstrated when the FCA investigation first hit the market a 12 months ago, can easily find lucrative solutions. Providers are on the market who will offer flexible options on commissions or margin settings, while offering fair value products to engender customer loyalty.
The GAP Insurance controversy highlighted the necessity for greater transparency, compliance, and customer-centric sales practices. Consumers deserved a positive final result of the FCA investigation they usually rightly received one.
And whilst it was a tough time for a lot of us, because the motor retail industry moves forward, it finds itself in a good higher place to assist protect the financial interests of dealers, promoting financial resilience, while providing the financial safety net that buyers want and want.
Duncan McClure Fisher is CEO at Intelligent Motoring
This Article First Appeared At www.am-online.com
