Gap insurance experts are calling for the Financial Conduct Authority (FCA) to clarify its stance, citing its recent blanket warning as “irresponsible”.
Last week the FCA issued a fair value warning to GAP insurance providers over high commission levels.
The City regulator said that it has evidence to show that GAP products are not providing fair value with data to suggest that only 6% of the amount customers pay in premiums is paid out in claims.
In response to the warning, Simon England, founder and managing director of online car GAP insurance provider ALA Insurance, branded the warning “irresponsible”, calling on the FCA to clarify the difference between online brokers and dealerships.
“While we know that dealerships control the vast majority of the GAP insurance market, it’s crucial that the FCA distinguishes between the premiums charged to customers by online providers and the inflated prices offered by dealerships,” he said.
“All GAP policies have the same net rates provided by underwriters. As markets mature and costs increase, of course providers have had to increase the price of premiums to cover costs.
“However, it is the dealerships who are inflating these prices even further, with some adding further costs to justify the 70% commission that has been highlighted by the FCA. This is where customers are paying well over the odds and not receiving fair value.”
He pointed to the fact that in the recent past, the FCA had encouraged consumers to head online in order to find fair value. “However,” England said, “this messaging does not seem consistent with this latest warning which barely recognises the hard work online providers do to provide reliable and honest coverage for their customers.”
“I would go as far to say that this week’s warning from the FCA is irresponsible. The warning does little to differentiate between reputable online providers against dealerships and the third parties that these inflated costs really apply to.
“The FCA are going against their own goal to provide consumers with positive outcomes by giving out blanket ultimatums to an entire industry which could put drivers off policies which, when handled with integrity, are designed to protect us.”
He said car buyers should go online and do their research to learn what GAP Insurance is what kind of coverage is needed through consulting reliable independent providers and comparison sites.
“Shop around and don’t just take out the cheapest option," he advised. "While it might be tempting to take out the cheapest premium, be aware of hidden costs which may actually drive up the price you’re paying. Remember, cheap isn’t always best if you’re looking for fair value.
“See what other customers are saying. The beauty of online providers is the higher standard to which they are held with customer testimonials, good and bad just a few clicks away. Take the time to look over customer reviews on sites like Trustpilot or Feefo to see real feedback and make your decision from there.”