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FCA issues call for evidence on GAP competition

The Financial Conduct Authority (FCA) has begun a study into general insurance add-on products with an appeal for evidence of competition in the marketplace.

GAP (guaranteed asset protection) insurance sold by the motor industry is one product under scrutiny. Others include home emergency insurance, gadget, travel and personal accident cover.

The market study will consider evidence from companies and individuals and look at the nature of competition in these markets, in particular whether these products represent good value for money and whether consumers understand what they are getting with their policy.

The FCA’s call for evidence, to be submitted to before September 10, reveals it will consider whether prices are excessive for a given quality, whether the quality is what consumers reasonably expect, any profitability differentiation between add-on and standalone sales for underwriters and distributors, and whether the consumer actively considers alternatives.

A key focus of the study is to investigate what impact add-ons have on consumer behaviour and expectations, how firms respond to those, and whether poor market outcomes arise as a result. 

Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), told the Association of British Insurers (ABI) Biennial Conference: “Our new competition duty is the single most significant change in our objectives as a regulator. It means that we don’t just wait for problems before we try to promote competition in the markets we regulate.

“We have our first market study underway looking at general insurance add-ons.  We’ve called for evidence and approached a number of firms in the market for information. We are testing whether poor outcomes in add-on sales could reflect particular consumer behavioural traits and firms’ responses to them.”

“One of the questions I was most frequently asked 101 days ago was: ‘Is the FCA going to be genuinely different from the FSA?’.  We understand why people reserved judgement - the FSA needed to change.

“100 days later I think we are taking steps in the right direction. The FCA is in many areas a very different animal from the FSA.

“We’re not just asking: Is this product compliant? Does it tick every legal box? But actually: is the outcome good? Is the market competitive? And is fair treatment of consumers designed into products and culture?”

The results of the FCA's findings will be reported in 2014.

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  • max - 10/07/2013 14:31

    And they will find the same old story. Some poor product, poorly understood, with few controls over selling practices, excessive customer pricing and dealer commissions. The few in your industry, will let the many down,who do try and get things right with reasonable products and pricing.Products at over £500 a time giving true customer value! Really??

  • Craig Sturgeon - 18/07/2013 15:23

    They will find that some of the major players in the Gap Insurance arena are selling a Market Value Adjustment Clause policy which may not pay the difference between insurance write off and invoice price due to Glass Guide value taken into account. Do there customers know this when purchasing?? I bet NOT!! AMS Insurance Services provide Gap products without this clause.

  • gezza37 - 21/07/2013 11:38

    Yes Max you are quite right but until dealers put less emphasis on add-ons this will continue. We keep being told the profit is no longer in the metal, but in the F&I, and targetted accordingly.Unless you sell add-ons at inflated prices, you don't earn!!

    • max - 30/07/2013 11:14

      @gezza37 - And whats has 'you earning' got to do with customers getting the right products at the right price, and a clear understanding of the full T&Cs? Unless of course the industry has to mis sell to make money. It's a broken model if there is no profit in selling the metal.

  • max - 09/08/2013 11:17

    And just how many dealers have responded to this call for info - or turned the other way and hope it doesnt happen to them? is a ppi like storm coming your way.......