FCA changes to GAP – update

In April we examined the Financial Conduct Authority’s (FCA) preliminary report analysing the way dealerships and finance houses sell GAP insurance.

Published: 9th September 2014

In April we examined the Financial Conduct Authority’s (FCA) preliminary report analysing the way dealerships and finance houses sell GAP insurance.

See: https://www.ala.co.uk/connect/customers-to-benefit-from-fca-changes-to-gap/

The FCA, as part of their ongoing investigation into General Insurance add-ons, has proposed several remedies designed to reduce the high proportion of negative outcomes experienced by motorists when purchasing GAP insurance from dealers.

One of these remedies is likely to involve a “deferral” of some kind, intended to break the “point of sale” advantage dealers have when selling “add-on” Finance and Insurance (F&I) products to customers buying a car. The products are undeniably a valuable source of revenue for dealers. The sales environment at the dealership can often pressure customers into buying products they may not want, need or understand. Even if the customer does see the benefit of the cover they can often find better value and quality products from independent specialist suppliers.

As part of their market research the FCA asked more than 1000 consumers about their experiences when purchasing add-on insurance and researched how buying decisions we influenced by different sales tactics. Whilst the FCA report considered various add-on F&I products, GAP insurance presented the most pressing concerns

“where the sales process in the car showrooms often leaves people with the impression it is the only way to buy the product.”

The report found that over two-thirds of customers were unable to say with any accuracy how much they paid for their GAP insurance from the dealer. More worrying still is that a fifth of people did not know or couldn’t recall that they had bought a policy at all.

A “time to consider” clause is one of the ways it has been suggested the FCA might try to reduce the problems within the industry in their final report. The FCA could insist upon dealers contacting customers a few days after purchase to ask if they are still happy with, and wish to keep, the cover. Some dealers argue that offering a 30 day cooling off period, instead of the mandatory 14, serves this purpose anyway – however even this time can pass quickly without the customer’s notice, particularly taken in context of the proportion of people who didn’t realise they had the cover or didn’t understand it.

It is a welcome point that the report acknowledges the value of GAP insurance and the peace of mind the product brings however, for these reasons, the FCA appear reluctant to restrict dealers too severely. This seems at odds with the other purported aim of the report – to boost competition in the market – and such a tentative approach could restrict any positive effect that would otherwise occur.

At ALA we strongly feel that the customer is not treated particularly well by dealers when it comes to add-on products; this extends to products other than GAP insurance including Tyre and SMART insurance, paint and upholstery protection and extended warranties. The customer is often seen as a “pound sign and not a person” to such an extent that the customer is paying highly inflated prices, sometime up to 3 times more for GAP and other products, than an independent company but without compromising on cover.

It remains to be seen whether the changes will be implemented but, more importantly, how effective they will be in fighting the customer’s corner.

Click here to read more: News ALA Connect.

Published: 9th September 2014
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