Eight out of ten insurance coverage corporations have agreed to pause gross sales of Assured Asset Safety (GAP) insurance coverage on the request of the monetary watchdog.
The Monetary Conduct Authority (FCA) stated it is going to perform a second spherical of discussions with these GAP suppliers that may proceed promoting the product though it stated that these have agreed to not use new GAP distributors within the interim.
GAP insurance coverage is usually bought alongside automotive finance. It covers the distinction between a car’s buy worth or excellent finance and its present market worth, within the occasion it’s written off earlier than finance has been repaid.
The FCA is nonetheless involved that the product is failing to supply worth and in September wrote to corporations asking them to take instant motion to show prospects are getting a good deal.
The regulator now says that after assessing responses, it was nonetheless not glad and that as a part of the request to pause gross sales, corporations have dedicated to make modifications to their GAP merchandise.
This motion follows findings within the FCA’s newest honest worth measures information, which exhibits that solely 6% of the quantity prospects pay in premiums for GAP insurance coverage is paid out in claims.
It stated it had seen examples of some corporations paying out 70% of the worth of insurance coverage premiums in fee to events concerned in promoting GAP insurance policies.
Sheldon Mills, FCA govt director of customers and competitors, stated: ‘GAP insurance coverage can present a helpful service to prospects, however in its present kind it doesn’t supply honest worth and we wish to see enhancements.
The regulator stated it is going to contemplate corporations’ proposals for various distribution channels, including that it recognises that some channels could possibly tackle its issues extra rapidly.
Late final month, an FCA spokesperson instructed AM, in an announcement: “We’re upset with the market’s response to our warnings to enhance the worth of GAP insurance coverage for purchasers. Now we have instructed corporations to take instant motion to indicate how prospects are getting a good deal or we are going to intervene,” including that it ‘had no intention of banning GAP insurance coverage as a product line’.
Many Insurers have declined to speak brazenly about GAP though some have already culled their GAP product.
Nonetheless one AM100 vendor, who most well-liked to not be named, instructed AM: “I really suppose the product is an efficient one when it’s bought and priced in the fitting method,” though admitted that he had not seen anybody volunteering to promote GAP otherwise, take a recent have a look at the product or to take a look at promoting it differently.
The FCA added that it has carried out vital work up to now aimed toward addressing points with GAP insurance coverage, together with a market research on insurance coverage add-ons and introducing new guidelines particularly for GAP insurance coverage.
The FCA’s evaluation of the worth offered by GAP insurance coverage contains information going again to 2008 and pointed to a 2014 market research that indicated that 10% of premiums had been paid out in claims, on common, between 2008-2012.
Since then, the FCA stated it has launched guidelines strengthening how insurance coverage corporations ought to assess whether or not their merchandise are offering honest worth.
