UK government regulator, the Financial Conduct Authority (FCA), has shut down the operations of multiple insurance firms that were operating Guaranteed Asset Protection (GAP) insurance in the automotive finance world. In a statement, the authority said, “The FCA is concerned that the product is failing to provide fair value to some consumers. In September, the FCA wrote to firms providing 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 a pause in sales with these firms. As part of this agreement, they have committed to making changes to their GAP products to provide better value for customers, which is 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, FCA 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 it does not offer fair value in its current form, 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 added that it 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.