Eight out of ten insurance coverage corporations have agreed to pause gross sales of Assured Asset Safety (GAP) insurance coverage on the request of the monetary watchdog.
The Monetary Conduct Authority (FCA) mentioned it would perform a second spherical of discussions with these GAP suppliers that can proceed promoting the product though it mentioned that these have agreed to not use new GAP distributors within the interim.
GAP insurance coverage is often offered alongside automotive finance. It covers the distinction between a car’s buy worth or excellent finance and its present market worth, within the occasion it’s written off earlier than finance has been repaid.
The FCA is nonetheless involved that the product is failing to supply worth and in September wrote to corporations asking them to take fast motion to show prospects are getting a good deal.
The regulator now says that after assessing responses, it was nonetheless not happy and that as a part of the request to pause gross sales, corporations have dedicated to make modifications to their GAP merchandise.
This motion follows findings within the FCA’s newest truthful worth measures knowledge, which reveals that solely 6% of the quantity prospects pay in premiums for GAP insurance coverage is paid out in claims.
It mentioned it had seen examples of some corporations paying out 70% of the worth of insurance coverage premiums in fee to events concerned in promoting GAP insurance policies.
Sheldon Mills, FCA govt director of shoppers and competitors, mentioned: ‘GAP insurance coverage can present a helpful service to prospects, however in its present type it doesn’t provide truthful worth and we wish to see enhancements.”
The regulator mentioned it would think about corporations’ proposals for various distribution channels, including that it recognises that some channels might be able to tackle its considerations extra rapidly.
Late final month, an FCA spokesperson advised AM, in an announcement: “We’re disenchanted with the market’s response to our warnings to enhance the worth of GAP insurance coverage for purchasers. We have now advised corporations to take fast motion to point out how prospects are getting a good deal or we’ll intervene,” including that it ‘had no intention of banning GAP insurance coverage as a product line’.
Many Insurers have declined to speak overtly about GAP though some have already culled their GAP product.
Nonetheless one AM100 vendor, who most popular to not be named, advised AM: “I truly suppose the product is an effective one when it’s offered and priced in the precise means,” though admitted that he had not seen anybody volunteering to promote GAP in a different way, take a recent have a look at the product or to have a look at promoting it otherwise.
The FCA added that it has carried out important work up to now geared toward addressing points with GAP insurance coverage, together with a market research on insurance coverage add-ons and introducing new guidelines particularly for GAP insurance coverage.
The FCA’s evaluation of the worth offered by GAP insurance coverage contains knowledge going again to 2008 and pointed to a 2014 market research that indicated that 10% of premiums have been paid out in claims, on common, between 2008-2012.
Since then, the FCA mentioned it has launched guidelines strengthening how insurance coverage corporations ought to assess whether or not their merchandise are offering truthful worth.