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FCA opens consultation on plans to alter GAP sales

The Financial Conduct Authority has today announced a new consultation on proposals to limit point-of-sale offer of GAP insurance.

Feedback on its plans is required by March 13. The FCA intends for the new rules to come into force in September 2015. Click here to go direct to the FCA consultation.

The FCA's key proposals are for a requirement for add-on GAP distributors to provide information that will encourage customers to shop around, including by advising them that they can purchase the product elsewhere, and a deferred opt-in or pause in the sale, whereby a dealership's salesperson can start the sales process but can’t conclude the sale for a set time period, giving customers time to consider whether they need the product at all and to shop around if they do.

The FCA said it wants to promote competition in the £160 million guaranteed asset protection (GAP) insurance market, including limiting the point of sale advantage for GAP sales made on the vehicle showroom floor and making it easier for consumers to shop around.

These proposals stem from the FCA’s first market study into general insurance add-ons, insurance products sold alongside another product. 

GAP insurance is usually offered alongside car sales. Its study found that consumers were often buying without having previously thought about the product or shopping around for alternatives and were not always getting the best deal.

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 said add-on GAP insurance claims ratios from 2008 to 2012 averaged 10%, meaning only £10 in every £100 paid in premiums was actually paid out in claims, and GAP add-on sales also account for an estimated annual overpayment of £76 million for every £108 million paid in premiums.

These factors indicate that people are buying products that offer poor value for money, the FCA said, adding that distributors are enjoying a very strong position, with little competition at point of sale meaning that there is no pressure on sellers to reduce price, and that there is a lack of information, including about alternatives, preventing consumers from being able to compare products, and a lack of consumer awareness that GAP insurance can be bought separately elsewhere.



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Comments

  • Joolz47 - 12/12/2014 13:55

    We seem to be seeing more and more demonising of the sales processes in the motor industry or at least in how it is represented in the media. How long before the actual selling price of cars will have to be declared along with a disclaimer that you can probably buy this car cheaper or that you can probably get a better valuation for your part exchange elsewhere? The customer’s interests are best served by dealerships being profitable and therefore equipped to deal with the full lifecycle of customers cars. As an industry we are massive contributors to the nation's economy, not only by way of the taxes we pay and collect, but our products and associated processes provide huge numbers of jobs in a variety of divergent ways from manufacture through to re-cycling and everything in between. Returning profit is a holistic transaction involving a complete array of products, and the removing of more and more products from the process will ultimately have to impact on transaction prices, and the very customers that are meant to be being protected will be the losers. I realise that there will always be rogue traders who inflate the value and or need for add-on products, but adding more overhead (compliance officers etc.) and removing profit lines hits the genuine, professional businesses far harder than these rogues, who will continue to operate in the shadows.

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    • Terry - 12/12/2014 17:23

      @Joolz47 - That is well said.

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  • RTR - 12/12/2014 14:06

    I think there is a need to stop pressurising customers at point of delivery. I wish however that car Manufacturers would stop building so many units in order that we make a decent return on the sale of a new car. Car Manufacturers have relied on us flogging these add ons for years , basically you sell the car as an add-on , not the other way round these days...would you like a 320d with your GAP & rediculously overpriced paint protection? I blame the car makers for this mess , they've got a lot to answer for in flooding these shores , I dont blame the FCA for looking after individuals customer and creating competition.

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  • gezza06 - 12/12/2014 14:50

    I just did a Google search and found 3 year Return to Invoice GAP on a £20,000 car giving £12,500 claim limit at the grand price of £111(Gap Direct). Can't see dealerships selling it for this and if they have to suggest the customers shop around, they won't sell any!!

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  • Jenna - 12/12/2014 17:57

    Are they going to look at house insurance then as it has the same low claim ratio...

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  • David Bamford - 13/12/2014 15:47

    You can achieve a price online for roughly a third of dealer POS RRP. The characteristics of the product is roughly the same, if not better online. Automotive finance houses are using the revenue from this product to artificially cross subsidise finance rates. We all know this. The party is over.

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    • gezza06 - 16/12/2014 10:16

      @David Bamford - I think you'll find the finance houses don't sell GAP, it's Insurance companies (who underwrite it) and Car Care Plan generally

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  • Luckypill - 16/12/2014 09:46

    I just hope everyone affected will respond to the document on the FCA website, if we don't we cant then complain when things change. If this changes everything else will follow. Have they really thought it through???? If a customer has the ability to walk in to a showroom and buy a £20,000 used car and drive away the same day who are the FCA to say that customer isn't capable of making a decision to buy GAP insurance on the day.....even if they ask for it? If we don't even respond we only have ourselves to blame!

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    • max - 16/12/2014 10:43

      @Luckypill – Yes, the industry must respond, but sensibly. However, when will the industry wake up to itself, it’s not a white as it would have everyone believe. The FCA are the regulator, not some i n-house self-serving trade body! Read the full papers, inc the preceding ones, and you would not be asking 'who do they think they are?', or why they are acting. The interventions the FCA are taking may not be the right ones, or have the effects they think they will, but they have the power to make the changes, that the industry should have made itself already. It’s only a matter of time, before they take the motor industry to task, on insurance and/or consumer credit. So get your houses in order now. It’s clear by reading the comments here that there remains a naivety in certain quarters of the industry , that it’s in some way ‘OK’ not be open and honest with its customers. The industry needs to react, by stop giving the public and the FCA the good reason to intercede, and abide by the 11 Principles. It’s all in the ‘culture’ that the nearly every FCA speech refers to. When will the industry turn that corner?

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    • Luckypill - 16/12/2014 10:53

      @max - Where on earth does it say anywhere in my comment that it is "OK" not to be open & honest? If there is one thing in this industry we are guilty of it is sitting back and watching things happen that affect us as opposed to actually trying to influence change. I don't have an issue with things changing so long as it is sensible and clearly though out. This is obviously not the case with the suggested procedures for Gap insurance and I am simply saying we, as an industry, need to make use of the opportunity to reply and explain why we think the changes are not acceptable and offer a different solution. So perhaps you could find someone with a ladder to help you down from that incredibly high horse you appear to be stuck on then you may be closer to the comment to actually read it properly! Have a good day.

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    • max - 16/12/2014 11:26

      @Luckypill - The ‘OK’ comment was not directed at you personally at all. It was wider comment on why the industry is where it is and why parts of it must change. As an accomplished polo player in my youth, I have never worried about coming off a pony, or for that matter a high horse. The industry has already provided data and attended meetings with the FCA on the subject - this paper is the last chance to comment. What you don’t say is why you think the proposals are ‘not acceptable’ – and not acceptable to whom? The industry? The customer? The regulator? The claims management industry? The Insurers? If the industry is ‘guilty of anything’ – I tender the accusation that it sat back and allowed poor practices to build up to a point the FCA had to act,and not that it failed to influence the regulator. Which of the published alternatives do you propose will meet the FCAs objectives? Or so you have alternative ideas, yet to be proposed? I don’t think the proposed ones will, BUT, my point is the industry wouldn’t be in this place of having to accept poor solutions had it acted itself and put its house in order. Four figure single premium GAP products are still being sold today! Bundled GI products of also four figures being ‘added’ to circa 8K vehicles. No, these are not the ‘norm’, but neither are they the exception! And thank you, yes I will have a very good day – I’m retiring soon, leaving the FCA and industry to battle it out. You know who my money is on.

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