Gap Insurance Sales Paused after FCA Investigation
A Financial Conduct Authority investigation looking into fair value for customers has led to the pause of the sale of 80% of GAP insurance policies on the market.
First of all, what is GAP?
GAP stands for Guaranteed Asset Protection; this is a type of insurance cover to help protect you in the event of a total loss.
When is GAP insurance most often taken out:
• For the purchase of a vehicle new
• For a financed vehicle
• If the vehicle is a long-term lease
• If the buyer is worried about the vehicle’s depreciation
If your vehicle is stolen or damaged beyond repair most insurers will pay out what the market value of your vehicle is at the time, so if your vehicle has depreciated in value since you bought it you may find yourself in a situation where you still owe money on a car that you no longer have or you’re unable to buy a new like-for-like replacement vehicle. This is where GAP comes in, with this insurance, you can claim the difference between the current market value and what you originally paid on the car, or what you owe.
Still need some clarification here’s a helpful video from Which!
Is GAP Insurance needed for my new Motorhome or Campervan?
Not if you have a Comfort Insurance policy underwritten by Aviva!
If you’re insuring your vehicle with Comfort Insurance make sure you’re not getting caught out by vehicle distributors with GAP insurance added onto the sale of your vehicle. At Comfort Insurance we offer a unique policy benefit – 3 years New for Old cover!
Under our Horizon and Twilight scheme our underwriter Aviva will replace your vehicle with a new vehicle of the same make and specification (subject to availability) if you or your domestic partner are the first owner and registered keeper of the vehicle within 36 months of purchase new. This means you can rest easy knowing that in the event of a total loss, your vehicle is fully covered!
One important thing to note with Aviva’s New for Old cover is to make sure you’re insuring your vehicle at the correct current market value, unlike most other vehicles in the motor trade industry that typically depreciate over time, new motorhomes and campervans are holding their value and even in cases appreciating in value! Therefore, when insuring your vehicle, it is imperative that the declared value is up to date at the time of insuring.
If you’d like to learn more about our policies give a member of our knowledgeable team a call on 0208 984 0777!
FCA investigation findings on GAP
The FCA’s investigation found the claims frequency was a mere 0.34% for add-on policies and 1.8% for stand-alone policies. The data published in their finding showed that only 6% of the amount customers pay in premiums is paid out in claims. Yet the FCA saw examples of some firms paying out up to 70% of the value of insurance premiums in commission to organisations responsible for selling GAP policies. These high commission figures saw high premiums for policies that had a significantly low claim rate, which led to the FCA calling into question whether customers were getting a fair deal stating: “We have seen high levels of commission in distribution chains for what appears to be a standard non-advised sale, where it was not clear how the commission levels had been assessed to support the delivery of fair value.”
In 2022 a total of 2.4 million GAP policies were sold meaning that 1 in every 16 drivers had a GAP policy. In September 2023 the FCA asked firms to prove that customers were getting a fair deal with their GAP policies, after assessing all the responses they received they were not satisfied and as a result 8 out of 10 insurance firms have agreed to halt the sales of GAP policies until the value of these policies are improved.
A statement from Sheldon Mills (Executive Director of Consumers and Competition)
‘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.’
The FCA has identified concerns with the design of GAP insurance across all distribution channels and is requiring firms to make changes.
The regulator will consider firms’ proposals for different distribution channels, and recognises that some channels may be able to address these concerns more quickly.
Under the Consumer Duty, firms must provide fair value to customers, ensure that products and services meet their needs, and provide good customer service.
Disclaimer: At the date of publication all information within this article was factually accurate. However, changes in circumstances over time may impact the accuracy of the information.
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We’re a family run business with over 30 years' experience in the provision of specialist motorhome and campervan insurance. With a wealth of awards under our belt, we pride ourselves on providing a friendly and professional service, offering you the most comprehensive cover money can buy - starting from just £220!
We’re a family run business with over 30 years' experience in the provision of specialist motorhome and campervan insurance. With a wealth of awards under our belt, we pride ourselves on providing a friendly and professional service, offering you the most comprehensive cover money can buy - starting from just £200!
