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FCA plans 'time to consider' clause for point-of-sale GAP policies

By Tony Willard

The Financial Conduct Authority (FCA) seems certain to introduce a ‘time to consider’ clause in GAP insurance policies sold at point of sale, which could reduce a valuable revenue source for dealers and F&I providers.

In its final proposals, expected before the end of the year, the consumer finance regulator is likely to insist that dealers contact customers a few days later and ask if they still want the cover.

Paul Harrison, head of motor finance at the Finance and Leasing Association, said: “We worked very closely with the FCA during its preparatory work, and the regulator listened to our concerns. These included how the proposed deferred opt-in for GAP insurance would work at point of sale, and the potential for it to result in dealers withdrawing from the insurance market. The FCA has committed to reviewing these issues further before publishing their remedies consultation.”

The FCA asked more than 1,000 consumers about their experiences when purchasing add-on insurance, and researched how buying decisions were influenced by different sales tactics.

The authority reviewed product literature, sales, pricing, profitability and claims. There were particular concerns about GAP, “where the sales process in car showrooms often leaves individuals believing that is the only source of the product”.

The FCA found 69% of general insurance add-on purchasers could not accurately remember how much they paid for the product three to four months later, and 19% did not recall buying it.

Harrison said many in the automotive industry felt FCA proposals revealed in July would increase costs for point-of-sale providers and lower sales volumes. Motor industry respondents first expressed their concerns when the FCA requested comments in the spring.

Dealer sales of GAP form part of a major review by the FCA, which plans a shake-up of the £1bn general insurance add-on market. Its plans include breaking the point-of-sale advantage for GAP insurance, forcing firms to publish claims ratios and banning pre-ticked boxes in sales and marketing documents.

“A key point of the report was that the FCA acknowledged the value some add-ons – including GAP motor insurance – can provide to customers,” said Harrison. “They also accepted the FLA’s argument that these products vary greatly and cannot be treated as one homogenous group.”

Christopher Woolard, (pictured) director of policy, risk and research at the FCA, said: “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.”


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  • Rob Chisholm, Applewood Vehicle Finance Ltd - 28/08/2014 14:40

    Whilst I agree that some of the more dubious practices need to be curtailed, particularly with regard to GAP sales to consumers, I find the closing comment about "insurance products they may not need or use" a strange one. GAP is a relatively simple product that covers an unpredictable scenario - that is a vehicle on finance that may be involved in a total loss claim. How can anyone predict that situation, and determine if the product is one the buyer 'may not need or use'? Rob Chisholm, Applewood Vehicle Finance Ltd

  • Steve Boucher - 28/08/2014 15:07

    As part of their reasoning for introducing another process in the sale of GAP products, 'the FCA found 69% of general insurance add-on purchasers could not accurately remember how much they paid for the product three to four months later, and 19% did not recall buying it.' How many car buyers remembered how much they paid for the car, 3-4 months later? I presume they weren't asked that question because it would render the FCA's statistic meaningless. How many homeowners claim on their insurance for the re-building of their property - it is a question you have to answer in your application for buildings insurance and no doubt your answer is then reflected in the cost of your premium - perhaps the FCA should force insurers to publish the claims ratio on this?

    • max - 28/08/2014 16:21

      @Steve Boucher - publishing of claims ratios is covered in the FCA papers on add-ons as a possible remedy! it's also, v 'oldhat' - getting customers to understand claims ratios on any product, on a like for like, educated basis, is not going to be workable. if they dont know what they paid for something, publishing this data is an expensive waste of time. it may however be something the FCA see fit to introduce 'to shine light' - again nothing new, its in the paper.

  • Max - 28/08/2014 16:04

    The AM poll, vs the article..... when will the industry take their heads out of the sand?? maybe when the FCA/FOS and CMCs coming knocking? Will your dealership’s earnings from add-on products rise or fall in the next six months? Rise: 66.7 % Fall: 33.3 % Remain flat: 0 %

    • max - 09/09/2014 13:59

      @Max - latest results Will your dealership’s earnings from add-on products rise or fall in the next six months? Rise: 45.5 % Fall: 54.5 % Remain flat: 0 % Is the industry waking up to the idea of value for money??

    • max - 12/09/2014 14:02

      @max - Will your dealership’s earnings from add-on products rise or fall in the next six months? Rise: 38.5 % Fall: 61.5 % Remain flat: 0 %

  • Tom - 28/08/2014 18:17

    Treating Customers Fairly should surely include making the process less onerus and risky for dealers to offer products like PPI and Gap in a professional and compliant manner without fear of substantial fines and breach of compliance. Dealers pretty much opted out of PPI a number of years ago for a similar reason and now hundreds of thousands of consumers enter into a financial obligation without knowledge of PPI and the potential risks. Is compliance really working in the best interest of the consumer? If dealerships take the same view with Gap, the FCA would have unknowingly increased the financial risk of the consumer. Without dealer introduction or presentation, most would never know of its existence. That said there are some awful techniques being used to sell Gap Insurance and I am not surprised that 19% did not recall buying it.

    • Rob Chisholm, Applewood Vehicle Finance Ltd - 28/08/2014 18:49

      @Tom - I agree with you 100%. Its exactly what I've been arguing. The law us nit the consumers friend.

    • max - 29/08/2014 11:05

      @Rob Chisholm, Applewood Vehicle Finance Ltd - Indeed the law is not always in the cust interests, but all too often, the dealer is an even more dangerous prospect for the customer. Sold well, there is value in these products, BUT price is an issue the industry must get to grips with, obscene commissions and poor practice by some will kill this for all, and that inc's the customers.

    • Tom - 29/08/2014 13:58

      @max - Agree with you in everything you say with the exception of price. Mars Bars in shop a = 65p shop b= 80p- widely accepted. Just look at the differences in prices of motor insurance on the comparison sites from cheapest to dearest, yes they will vary slightly in content but not to the level of price difference. The same can be said of building contractors, utility providers etc, - suppliers should have the freedom to charge what the market will pay. If not, does that mean that dealers should be made to charge the same price to all customers for a new car? No one customer might accept a £500 discount and another might push you to £1,000. Every business must have the freedom to decide.

    • Rob Chisholm, Applewood Vehicle Finance Ltd - 29/08/2014 16:22

      @Tom - And that's why the motor trade is so mistrusted by the general public. Fact is there is no justification to charge £450 for a GAP policy that can be obtained for less than half that price (or in our case a third of that cost) and which offers an equal or higher level of cover. Profit should not be a dirty word ... profiteering should be outed at every opportunity though.

    • Steve Boucher - 29/08/2014 17:56

      @Rob Chisholm, Applewood Vehicle Finance Ltd - So who is to decide what an acceptable profit margin is? If the FCA wants to regulate the motor trade in the same way as IFA's, are we not entitled to charge? Is It any wonder that around 20% of dealers are not applying for full permission?

    • Rob Chisholm, Applewood Vehicle Finance Ltd - 29/08/2014 20:42

      @Steve Boucher - the market determines that surely. And quite how or why dealers are allowed to get away with applying for full permission is beyond me.

    • Rob Chisholm, Applewood Vehicle Finance Ltd - 29/08/2014 20:44


    • max - 01/09/2014 14:10

      @Tom - Rob beat me the reply, but... A widely held point view, but………. The sale of those items/services are not regulated activity under the FCA, so buyers beware. For regulated activity the consumer has an increasing powerful ally in the FCA. It’s about fairness and with that will come transparency. So some dealers sell multiple insured ‘add-ons’, say GAP/Dent/Alloy……. Say with a total customer premium of £1000/1200 of which 40>60% + is dealer commission. Is that really value for the customer / would you let your mother buy, not the products (in which most agree there is true value/protection) but at those premiums??? What extra did a dealer have to do to sell one regulated product, than he does to sell several. A few extra minutes in the ‘pitch’ and a little product training, to increase the dealers commission from a few hundred to several hundred. No-one inc the FCA is saying don’t make a profit, but they are saying don’t make excessive profits. Like it or not the FCA has it’s sights set on competition (read that as value&price) and the responsible end of the market are responding, engaging, and looking to the future. The rest are in denial, or worse still, thinking to profit in the short term, at the expense of all. Competition in this market is not working well and many consumers are simply not getting value for money If the industry’s view is that it can continue to make the ‘high’ commissions it does today, it must surely expect the regulator to act, the FCA are not going to adjust their opinion much during the consultations and final rules.

  • Tom - 29/08/2014 14:00

    Sold well is the key. Price isn't in my opinion

  • David - 29/09/2014 16:54

    GAP insurance does have a use. Not having GAP insurance does have a risk. It has to be recognised that GAP is a generic term and benefits differ between insurer - policy & product types etc. I feel the dealers sell products that are commission centric and not the best and appropriate cover.