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GAP Insurers Suspend Sales Following FCA Concerns


The FCA has said that multiple insurance firms have agreed to pause sales of Guaranteed Asset Protection (GAP) insurance, following a request from the FCA. The firms that have agreed to this action account for 80% of the GAP market.

The regulator will now carry out a second tranche of engagement with the remainder of the GAP market, with the aim of improving the value of the product across all firms. In the meantime, the firms affected have agreed not to use take on new GAP distributors.

GAP insurance is typically sold alongside car finance. It covers the difference between a vehicle’s purchase price or outstanding finance and its current market value, should it be written off before finance has been repaid. The FCA has expressed concerns that the product is failing to provide fair value to some consumers.

In September, the FCA wrote to firms manufacturing GAP insurance products asking them to take immediate action to prove that customers are getting a fair deal. After assessing responses to this request, the FCA said it was not satisfied, leading to the current sales pause agreed. The firms affected have now committed to make changes to their GAP products to provide better value for customers in line with FCA rules.

This action follows findings in the FCA’s latest fair value measures data, which showed that only 6% of the amount customers pay in premiums for GAP insurance is paid out in claims. The FCA has seen examples of some firms paying out 70% of the value of insurance premiums in commission to parties involved in selling GAP policies.

FCA executive director of consumers and competition Sheldon Mills said ‘I welcome the agreement by firms providing GAP insurance to pause sales while they work on improving value for customers. GAP insurance can provide a useful service to customers, but, in its current form, it does not offer fair value, and we want to see improvements. We will continue to work closely with firms as we carry out further engagement to resolve these issues and ensure customers are getting fair value products that meet their needs.’