The Financial Conduct Authority (FCA) is proposing a number of changes to the way GAP insurance is sold which it hopes will shake up the industry.
Following the FCA’s investigation into GAP insurance which began in July 2013, the organisation is looking to impose a requirement that asks customers who purchase GAP insurance as an add-on to confirm they want the product in the days following the sale of the primary product.
The FCA is also looking to ban pre-ticked boxes ‘to ensure consumers actively choose to buy an add-on and are clear when and how they are purchasing a product’.
The FCA also wants to firms to publish claims ratios ‘to highlight low value products, pressuring providers to deliver better value to their customers’.
The FCA has said it will also be looking to improve the way add-ons are offered through price comparison websites; including how and when they are introduced.
A spokeswoman for the FCA said the changes are just proposals at this stage and the organisation will be gathering feedback between now and April 8. A decision will be made about the FCA's proposals after that.
Christopher Woolard, director of policy, risk and research at the FCA, said: “There’s a clear case for us to intervene.
“Competition in this market is not working well and many consumers are simply not getting value for money. Firms must start putting consumers first and stop seeing them as pound signs.
“We believe our proposals will address these issues and prevent consumers paying for poor-value insurance products that they may not need or use.”
The FCA’s report into GAP insurance found 69% of add-on purchasers could not accurately remember how much they paid for the product three to four months later, and 19% could not even remember buying it.
The FCA report into GAP insurance said: “The sales process in car showrooms often leaves individuals believing that the only source of the product is the showroom where they are buying the car.”
The report showed that GAP add-on insurance claims ratios from 2008 to 2012 averaged just 10%.
The FCA analysed evidence about firms and consumers in the travel, gadget, GAP, home emergency, and personal accident add-on insurance markets.
The FCA reviewed the experiences of over 1,000 consumers and carried out behavioural research to understand if buying decisions are affected by different sales tactics. The FCA also reviewed product literature, sales, pricing, profitability, and claims.