FCA to insurers: ‘Fix GAP products or we’ll intervene’
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The Financial Conduct Authority has ordered insurers to take immediate steps to prove they are providing customers a fair deal when selling certain add-on products or to expect further action from the regulator.
The offering in question is guaranteed asset protection insurance, an add-on to motor insurance, after evidence that GAP products “may be failing to provide fair value to customers”, the watchdog argued.
GAP insurance covers the difference between a vehicle’s purchase price and its current market value.
According to the FCA’s latest insurance value measures data, in 2022, for GAP insurance, only 6% of premiums was paid out in claims, but the FCA said it had seen examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as motor dealerships.
In letters sent to insurers, the regulator reminded them that it expects firms to check if their products provide fair value to their customers.
The FCA said insurers “must take immediate action to prove customers are getting a fair deal”, or the authority will intervene by giving firms a three-month ultimatum.
Matt Brewis, director of insurance at the FCA, said: “This is an early signal of the work we’ll be doing under the Consumer Duty. Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided.”
How does GAP insurance work?
GAP insurance provides cover for a financial shortfall that can happen when:
· a customer’s vehicle is written off or stolen
· the motor insurance payout does not pay back its original value at purchase or the remaining finance value (if the vehicle was bought on finance)
Aside from its loyalty premium ban in 2021, the FCA also tightened consumer protection rules with the introduction of the Consumer Duty.
In July, the authority asked insurers to improve their claims handling following a review showing an increase in complaints about insurance claims and incidents of lengthy claims handling times and people not being given appropriate settlements.
Does general insurance require more regulatory scrutiny than life insurance?
