29 January 2024

The FCA says it is “disappointed with the market’s response to our warnings to improve the value of GAP insurance for customers”.

The finance regulator was responding to reports last week it was considering an effective ban on retailers from selling GAP insurance.

“We have no intention of banning GAP insurance as a product line,” it told Auto Retail Agenda.

The regulator explained that in September 2023, it warned GAP insurers that the product was unlikely to be providing fair value to customers. In 2022, only 6% of the amount customers paid in GAP insurance premiums was paid out in claims.

“The FCA has seen many examples of firms paying out up to 70% of the value of insurance premiums in commission to parts in the distribution chain, such as motor dealerships.”

Instead of a ban, the FCA spokesperson said it has told GAP insurance product providers “to take immediate action to show how customers are getting a fair deal, or we will intervene”.

FCA director of insurance Matt Brewis added: “This is an early signal of the work we’ll be doing under the Consumer Duty.

“If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.”

Tags: DCA, discretionary commission agreements, FCA, GAP, GAP insurance