The FCA has given insurers a three-month ultimatum after recent data revealed that guaranteed asset protection (GAP) products could be failing to provide fair value.
GAP insurance is an add-on to motor insurance and covers the difference between a vehicle’s purchase price and its current market value.
The FCA said its data showed that there had been cases where only 6% of the amount customers paid in premiums was paid out in claims with some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as dealerships.
As a result, firms offering this type of insurance have been given a three-month ultimatum by the regulator to take immediate action, or risk an intervention. The FCA added that it had written to all companies within the industry, reminding them of their duty to ensure good customer outcomes.
New Consumer Duty regulations introduced by the FCA in July set out updated regulations that insurers must follow to ensure a service driven market through reviewing their products and services against a new standard of fairness.
Matt Brewis, FCA director of insurance, said: “Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided.”
He added that should GAP insurers be unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.