GAP insurers agree to suspend sales following FCA concerns over fair value

The firms which have agreed to this action account for 80% of the GAP market.

The regulator will carry out a second tranche of engagement with the rest of the GAP market, with the aim of improving the value of the product across all firms. These firms have agreed not to use new distributors of GAP in the interim.

GAP insurance is typically sold alongside car finance. It covers the difference between a vehicle’s purchase price or outstanding finance and its current market value, in the event it is written off before finance has been repaid.

The FCA is concerned that the product is failing to provide fair value to some consumers.

In September, the FCA wrote to firms manufacturing GAP insurance products asking them to take immediate action to prove customers are getting a fair deal.

After assessing the responses to this request, the FCA was not satisfied and, as a result, has agreed this pause in sales with these firms. As part of this agreement, they have committed to make changes to their GAP products to provide better value for customers, in line with FCA rules.

This action follows findings in the FCA’s latest fair value measures data, which shows that only 6% of the amount customers pay in premiums for GAP insurance is paid out in claims. The FCA has seen examples of some firms paying out 70% of the value of insurance premiums in commission to parties involved in selling GAP policies.

Sheldon Mills, Executive Director of Consumers and Competition, said:  

'I welcome the agreement by firms providing GAP insurance to pause sales while they work on improving value for customers. 

'GAP insurance can provide a useful service to customers, but in its current form it does not offer fair value and we want to see improvements.  

'We will continue to work closely with firms as we carry out further engagement to resolve these issues and ensure customers are getting fair value products that meet their needs.'

The FCA has identified concerns with the design of GAP insurance across all distribution channels and is requiring firms to make changes.

The regulator will consider firms’ proposals for different distribution channels, and recognises that some channels may be able to address these concerns more quickly.

Under the Consumer Duty[2], firms must provide fair value to customers, ensure that products and services meet their needs, and provide good customer service.

Notes to editors

• In September, the FCA warned GAP insurers[3] over the value offered by this insurance product and that it was unlikely to be providing fair value to customers in line with our rules.
• The FCA carried out significant work in the past aimed at addressing issues with GAP insurance, including a market study[4] on insurance add-ons and introducing new rules[5] specifically for GAP insurance.
• The FCA’s assessment of the value provided by GAP insurance includes data going back to 2008. In our 2014 market study, we found that only 10% of premiums were paid out in claims, on average, between 2008-2012.
• Since then, the FCA has introduced rules[6] strengthening how insurance firms should assess whether their products are providing fair value.
• GAP insurance provides cover for a financial shortfall that can happen when:
  • a customer’s vehicle is written off or stolen
  • the motor insurance pay-out does not pay back its original value at purchase or the remaining finance value (if the vehicle was bought on finance)
• You can view the FCA’s latest Value Measures Data[7] 
• In addition to its loyalty premium ban for home and motor insurance in 2021, the FCA also tightened up its rules[6] to make sure products were providing fair value. 
• Find out more information about the FCA[8].