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Car dealers have less than three months to implement new FCA GAP sale rules

Car dealers selling GAP insurance have until September 1 to ensure new add-on sales' rules are applied.

These include having to provide customers with information to help them shop around and introduce a deferral period in all cases.

The product cannot be introduced and sold on the same day.

The Financial Conduct Authority this week released the final findings on the general insurance market study on GAP sale competition, together with rules.

It is standing by its September 1 deadline the new rules have to come into force despite some objecting in the proceeding consultation period this didn’t give the industry enough time to implement them.

Key points in the FCA's competition remedy

Deferral period: four days for new and used vehicles

The FCA considers the proposal of four days in total, including the option to conclude the day after (the start of the deferral period) for customer-initiated sales, should be sufficient and “strikes the right balance”.

This deferral period cannot be waived even if a customer immediately purchases GAP after being given the prescribed information. The FCA added repeat customers “can also benefit from shopping around” at this stage.

The prescribed information must include information on how the deferred opt-in works, including the date the prescribed information was provided.

Prescribed information

This remains as the FCA has previously proposed:

1. total premium of the add-on GAP policy

2. significant features and benefits, exclusions or limitations and cross-references to relevant policy document provisions

3. that GAP insurance is sold by other distributors

4. whether the policy is optional

5. when the policy can be concluded by the firm, “including the date on which the prescribed information was provided so that it is clear to the customer when the ‘clock’ started”.

GAP insurance on credit

The new rules are not incompatible with the Consumer Credit Sourcebook (CONC) or Consumer Credit Act and as such do not prevent consumers buying GAP on credit, despite opposition that two credit checks would be needed.

Implementation date

On the opposition to the in-force date of September 1, the FCA said that since it had been told 22% of vehicle sales took place in this month in 2014, “it is important that the remedy should apply from September, so that the increased number of customers purchasing vehicles will benefit from the remedy”.

Implementation costs

The FCA has upped its cost estimate from £5m to £20m, said by the FCA to be within a “reasonable range and do not change our conclusion that the policy generates significant and ongoing net benefits for consumers”, estimated at £31m to £54m annually.   

Monitoring of GAP sales' volumes

The FCA expects firms to set their own tolerances and expectations about what would be high levels of sales and what would trigger a review ie if a dealership or staff member’s sales were “outside the normal range”.

The FCA’s ‘GAP: competition remedy’ statement concludes: “We expect to see better consumer outcomes from more informed purchasing decisions and improved competition between add-on and standalone distribution channel, countering a “point-of-sales advantage” for dealers and the lack of transparency. This had led to consumers getting “poor value” from add-on products and stand-alone purchases.

In its market study the FCA found that:

  • Almost two-thirds of add-on customers (59%) reported not having thought about buying GAP insurance until the day they bought it
  • Add-on GAP insurance customers had a worse understanding of the product than standalone GAP insurance purchasers
  • Almost half of customers reported being unaware that they could have bought GAP insurance other than at the point of sale. Add-on GAP insurance customers were the least likely to shop around relative to purchasers of the other four sampled (add-on) products in the FCA’s market study (only 19% of respondents said they did)
  • Shopping around is likely to be “particularly worthwhile”. Add-on GAP insurance prices can be significantly higher than stand-alone prices. Furthermore, the stand-alone share of the market is very small in comparison with add-on GAP sales, which further underlines the advantage held by add-on distributors
  • FCA evidence suggests that GAP insurance sold as an add-on is often poor value for customers, with only 10% of retail premiums for add-on GAP insurance being paid out in claims. This is a very low claims ratio relative to other products.

The respondents to the FCA consultation on GAP add-on sales included Car Care Plan, Close Brothers, the Finance and Leasing Association, Inchcape Retail, Mapfre Abraxas, Mondial Assistance (UK), the National Franchised Dealers Association and The Warranty Group.

Response:

The National Franchised Dealers Association has expressed its disappointment at the rulings.

"The FCA has turned a deaf ear to dealer concerns regarding changes to selling GAP insurance, despite extensive lobbying by the NFDA.  

"We have however gained some substantial concessions, primarily in terms of the deferment period, which has been revised down from the FCA’s original proposal of a 30 day period to four days," said director Sue Robinson.
 

The Warranty Group’s divisional director Ciaron Whelan said: “The main point is that the FCA’s final announcements mean that we all now know exactly where we stand and our view is that GAP remains a very worthwhile product for almost all dealers and a valuable purchase for many, many car buyers.

“It is important to underline that, in our experience, the vast majority of dealers were already selling GAP in a responsible fashion, so they have little to make in the way of changes.

“The key adjustment is that dealers will need to ensure that they have a consumer focused solution. This means changing their GAP sales structure in order to meet the FCA’s desire to provide customers with a period of time during which they can consider the merits of purchasing the product.  

“Really, the main impact will be that dealers will need to be able to provide clear retrospective evidence that they are adhering to the rules.”

> PS15/13: Guaranteed Asset Protecion insurance: competition remedy 



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  • jason - 14/06/2015 14:55

    As a car dealer I can definitely say that Gap at 350 for a £15000 car is good value. Especially when compared with car insurance. Same price for 1 year?

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    • Rob Chisholm, Applewood Vehicle Finance Ltd - 15/06/2015 15:23

      Jason, as a leasing broker I can tell you that £350 is at the high end of the pricing scale! Try £129.00 for a product covering upto a £10,000 shortfall. That's what we offer ... and I can promise you it is every bit as comprehensive as anything else in the market place. Thanks to the likes of you who believe the rubbish you have just put out there, the FCA have another product to dig their teeth into, making life even more difficult for everybody else who has been working hard to make sure that the industry behaves in an ethical fashion.

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      • GAPInsurance.co.uk - 21/07/2015 11:18

        I agree with you Rob. GAP insurance at £350 for a £15,000 vehicle is incredibly poor value for money. (Do you wear a Dick Turpin mask in the showroom Jason?). However £129 isn't particularly great value for money for a 3yr GAP insurance policy with a £10k Claim Limit either (and that's before we get in to the fact that it's not impossible that for a leased (Contract Hire) vehicle, GAP Insurance *may* not ever be required too). Try £69.91 for a 3yr Invoice GAP insurance policy with a £10k Claim Limit or, £99.66 for a 3yr Replacement GAP insurance policy (the latter not being available for a Contract Hire vehicle). Dealers like Jason have been having their GAP insurance cake and eating it for far too long... these rules (even in their current, disappointingly watered down structure) are long overdue. David GAPinsurance.co.uk

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      • GAPInsurance.co.uk - 21/07/2015 11:18

        I agree with you Rob. GAP insurance at £350 for a £15,000 vehicle is incredibly poor value for money. (Do you wear a Dick Turpin mask in the showroom Jason?). However £129 isn't particularly great value for money for a 3yr GAP insurance policy with a £10k Claim Limit either (and that's before we get in to the fact that it's not impossible that for a leased (Contract Hire) vehicle, GAP Insurance *may* not ever be required too). Try £69.91 for a 3yr Invoice GAP insurance policy with a £10k Claim Limit or, £99.66 for a 3yr Replacement GAP insurance policy (the latter not being available for a Contract Hire vehicle). Dealers like Jason have been having their GAP insurance cake and eating it for far too long... these rules (even in their current, disappointingly watered down structure) are long overdue. David GAPinsurance.co.uk

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      • GAPInsurance.co.uk - 21/07/2015 11:18

        I agree with you Rob. GAP insurance at £350 for a £15,000 vehicle is incredibly poor value for money. (Do you wear a Dick Turpin mask in the showroom Jason?). However £129 isn't particularly great value for money for a 3yr GAP insurance policy with a £10k Claim Limit either (and that's before we get in to the fact that it's not impossible that for a leased (Contract Hire) vehicle, GAP Insurance *may* not ever be required too). Try £69.91 for a 3yr Invoice GAP insurance policy with a £10k Claim Limit or, £99.66 for a 3yr Replacement GAP insurance policy (the latter not being available for a Contract Hire vehicle). Dealers like Jason have been having their GAP insurance cake and eating it for far too long... these rules (even in their current, disappointingly watered down structure) are long overdue. David GAPinsurance.co.uk

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      • GAPInsurance.co.uk - 21/07/2015 11:19

        I agree with you Rob. GAP insurance at £350 for a £15,000 vehicle is incredibly poor value for money. (Do you wear a Dick Turpin mask in the showroom Jason?). However £129 isn't particularly great value for money for a 3yr GAP insurance policy with a £10k Claim Limit either (and that's before we get in to the fact that it's not impossible that for a leased (Contract Hire) vehicle, GAP Insurance *may* not ever be required too). Try £69.91 for a 3yr Invoice GAP insurance policy with a £10k Claim Limit or, £99.66 for a 3yr Replacement GAP insurance policy (the latter not being available for a Contract Hire vehicle). Dealers like Jason have been having their GAP insurance cake and eating it for far too long... these rules (even in their current, disappointingly watered down structure) are long overdue. David GAPinsurance.co.uk

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      • GAPInsurance.co.uk - 21/07/2015 11:21

        Whoops. I was presented with a Server Error message when I posted my reply... me hitting refresh to try again appears to have caused some duplication - sorry!

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    • chizzy - 15/06/2015 15:25

      Jason, as a leasing broker I can tell you that £350 is at the high end of the pricing scale! Try £129.00 for a product covering upto a £10,000 shortfall. That's what we offer ... and I can promise you it is every bit as comprehensive as anything else in the market place. Thanks to the likes of you who believe the rubbish you have just put out there, the FCA have another product to dig their teeth into, making life even more difficult for everybody else who has been working hard to make sure that the industry behaves in an ethical fashion. Rob Chisholm, Applewood Vehicle Finance Ltd

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  • Luckypill - 15/06/2015 19:05

    I agree with Rob to an extent, I am very much of the opinion "little and often" but I must admit to being slightly uncomfortable about the principle. Your almost telling people what they can and can't do as if they are incapable of making their own decision. If it applies to GAP why not any product? Next time I buy a torch when I get to the counter will I be offered batteries OR will I be told about batteries which they have available but also told that other people sell them and if I would like some batteries for my torch I need to return in 4 days? 50% of the vehicles we sell go out the same day, I don't think the FCA have really "consulted" on this at all, they have simply allowed companies to have a bit of a whine before they carried on doing what they were always going to do! and as for the NFDA, can they not see they have been played like puppets? The 30 day deferment period was NEVER going to happen, it was just a scare tactic like when the government threaten to close and A&E, everyone goes berserk and complains then when they shut a couple of normal wards and slice the budget nobody minds because at least the A&E is safe! Of course the real problem will be warranty.....give it 12 months!

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