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With the aim of enhancing fair value for consumers, the UK financial regulator has granted permission for a substantial number of firms to resume the sale of Guaranteed Asset Protection (GAP) insurance.
GAP insurance is commonly marketed alongside car financing and serves to bridge the gap between a vehicle’s purchase price or outstanding loan amount and its current market valuation, should it be declared a total loss before the loan is fully paid off.
The original deadline set by the FCA for March 31 was extended into April by one month to allow ample time for a comprehensive review of fair value submissions from online providers.
Upon demonstration by firms that their GAP offerings comply with the FCA’s regulations on fair value for consumers, they are permitted to resume the sale of this insurance product.
Traditionally, GAP insurance, also referred to as return-to-invoice (RTI) insurance, has been a profitable supplementary product for car dealerships during the sales process.
In its latest announcement, the FCA observed that products are now being marketed with considerably reduced commission payouts to those selling GAP, thereby enhancing value for customers and leading to better customer outcomes.
Explore our detailed analysis: Is the chapter on GAP insurance profit closed?
Sheldon Mills, executive director of consumers and competition at the FCA, remarked: “We intervened when our analysis revealed that customers were not receiving a fair deal.
“I am encouraged that, as a result of productive dialogue with the industry, a significant segment of the market can now resume sales.
“GAP insurance can offer valuable assistance to customers and we are actively collaborating with the remainder of the market to address our concerns.”
In February, the FCA announced that numerous insurance companies had agreed to halt GAP insurance sales following a request from the regulatory body. Subsequently, in March, further discussions took place with the remainder of the market.
In 2022, the FCA’s value metrics data disclosed that there were in excess of 2.4 million active GAP policies.
According to this data, only 6% of premium payments made by customers for GAP insurance in 2022 were utilized in claims processing, with certain companies disbursing up to 70% of premium value as commission to entities engaged in the sale of GAP insurance.
The FCA underlined its commitment to scrutinize proposals from the remaining firms aimed at enhancing value for consumers.
Past measures implemented by the FCA in the preceding decade, such as obligatory sale delays, resulted in a notable decline in the number of GAP policies sold by dealerships.
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