Eight out of ten insurance firms have agreed to pause sales of Guaranteed Asset Protection (GAP) insurance on the request of the financial watchdog.
The Financial Conduct Authority (FCA) said it would perform a second round of discussions with those GAP providers that may proceed selling the product even though it said that these have agreed not to make use of latest GAP distributors within the interim.
GAP insurance is usually sold alongside automobile finance. It covers the difference between a vehicle’s purchase price or outstanding finance and its current market value, within the event it’s written off before finance has been repaid.
The FCA is nevertheless concerned that the product is failing to supply value and in September wrote to firms asking them to take immediate motion to prove customers are getting a good deal.
The regulator now says that after assessing responses, it was still not satisfied and that as a part of the request to pause sales, firms have committed to make changes to their GAP products.
This motion follows findings within the FCA’s latest fair value measures data, which shows that only 6% of the quantity customers pay in premiums for GAP insurance is paid out in claims.
It said it had seen examples of some firms paying out 70% of the worth of insurance premiums in commission to parties involved in selling GAP policies.
Sheldon Mills, FCA executive director of consumers and competition, said: ‘GAP insurance can provide a useful service to customers, but in its current form it doesn’t offer fair value and we wish to see improvements.”
The regulator said it would consider firms’ proposals for various distribution channels, adding that it recognises that some channels may have the option to handle its concerns more quickly.
Late last month, 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. We now have told firms to take immediate motion to point out how customers are getting a good deal or we are going to intervene,” adding that it ‘had no intention of banning GAP insurance as a product line’.
Many Insurers have declined to speak openly about GAP although 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 a great one when it’s sold and priced in the appropriate way,” although admitted that he had not seen anyone volunteering to sell GAP in another way, take a fresh have a look at the product or to have a look at selling it differently.
The FCA added that it has carried out significant work previously geared toward addressing issues with GAP insurance, including a market study on insurance add-ons and introducing latest rules specifically for GAP insurance.
The FCA’s assessment of the worth provided by GAP insurance includes data going back to 2008 and pointed to a 2014 market study that indicated that 10% of premiums were paid out in claims, on average, between 2008-2012.
Since then, the FCA said it has introduced rules strengthening how insurance firms should assess whether their products are providing fair value.
This Article First Appeared At www.am-online.com
