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.