The Financial Conduct Authority (FCA) announced on Friday further proposals in their ongoing effort to tackle the issues inherent to GAP insurance add-on sales.
In earlier posts from April and September we outlined the initial research carried out by the FCA which exposed high GAP insurance premiums from dealers and finance companies, lack of transparency and lack of consumer understanding about GAP insurance.
Claims ratios for GAP insurance (the amount paid out in comparison to premiums paid) were just 10% between 2008 and 2012, meaning that just £10.00 was paid out for every £100.00 paid in premiums. The poor value for money being given to consumers has prompted the FCA to propose the following:
1. A deferred opt-in or pause in the sale, giving the customer time to consider whether they need the product and allow them to shop around for the best deal if they do.
2. A requirement for dealers and finance companies offering add-on GAP insurance to provide information encouraging customers to shop around, including advice about where else they can purchase cover.
In a market worth £160 million there is currently no incentive for dealers to reduce their prices due to lack of competition. The changes are designed to break the shop-floor point of sale advantage that dealers have, increase transparency and ensure consumers are getting a better deal with a more comprehensive understanding of what they are buying.
Christopher Woolard, director of policy, risk and research at the FCA, said:
Earlier this year we said that firms must put consumers’ interests first. It’s important that people are able to make informed decisions about whether they need GAP, and if they do, the best place to buy it. Today’s proposed rules are intended to help consumers from paying too much for a product that may not be offering good value for money.
The FCA has asked for feedback on its proposals by 13 March 2015 with the intention for the new rules to come into force in September 2015.
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