Eight out of ten insurance coverage companies 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 can perform a second spherical of discussions with these GAP suppliers that may proceed promoting the product though it mentioned that these have agreed to not use new GAP distributors within the interim.
GAP insurance coverage is usually bought alongside automotive finance. It covers the distinction between a automobile’s buy value or excellent finance and its present market worth, within the occasion it’s written off earlier than finance has been repaid.
The FCA is nevertheless involved that the product is failing to offer worth and in September wrote to companies asking them to take rapid motion to show clients 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, companies have dedicated to make adjustments to their GAP merchandise.
This motion follows findings within the FCA’s newest honest worth measures knowledge, which reveals that solely 6% of the quantity clients pay in premiums for GAP insurance coverage is paid out in claims.
It mentioned it had seen examples of some companies 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 clients, however in its present kind it doesn’t supply honest worth and we wish to see enhancements.”
The regulator mentioned it can contemplate companies’ proposals for various distribution channels, including that it recognises that some channels could possibly tackle its issues extra shortly.
Late final month, an FCA spokesperson instructed AM, in an announcement: “We’re disillusioned with the market’s response to our warnings to enhance the worth of GAP insurance coverage for purchasers. We’ve instructed companies to take rapid motion to point out how clients are getting a good deal or we are going to 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.
Nevertheless one AM100 vendor, who most popular to not be named, instructed AM: “I truly suppose the product is an efficient one when it’s bought and priced in the proper approach,” 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 another way.
The FCA added that it has carried out vital work up to now aimed toward addressing points with GAP insurance coverage, together with a market examine on insurance coverage add-ons and introducing new guidelines particularly for GAP insurance coverage.
The FCA’s evaluation of the worth supplied by GAP insurance coverage consists of knowledge going again to 2008 and pointed to a 2014 market examine 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 companies ought to assess whether or not their merchandise are offering honest worth.
