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My name is Rhys, a first time dad blogging about my adventures and experiences of being a parent. [email protected]

How GAP insurance has changed since the 2015 FCA Intervention

GAP Insurance is an add-on product when someone purchases a vehicle and can provide financial shortfall in the event of a write-off by covering the difference between an insurance payout (the current market value) and the amount originally paid or left on the finance agreement.

Previous Issues with GAP Insurance

GAP insurance can be a smart purchase for a motorist and save them a fortune, but the FCA decided to increase regulation in this field following a report published in 2014 which discovered that the lack of competition throughout the industry was leading to inflated prices at the point of sale so consumers were not getting value for money when purchasing GAP insurance. The report noted that on average only £10 in every £100 paid in add-on premiums was paid out in claims and consumers often purchased insurance without shopping around for alternatives.

New Rules Implemented

Consequentially, the FCA introduced new rules in a bid to standardise how GAP insurance was advertised and sold to consumers. There were two main changes that were made with the first being that sellers had to provide written information on GAP insurance which encourages people to shop around and informs them that they can buy GAP insurance elsewhere. The other major change implemented was that there would be a deferred opt-in period allowing the consumer two full days after information has been provided before a contract can be concluded.

Results from the Intervention

So, what was the impact of the FCA’s intervention in the add-on GAP insurance market? Research was carried out in 2018 which revealed that there has been significant change to consider behaviour and attitudes when choosing to invest in this product. Results revealed that GAP insurance is becoming a more standard consideration for motorists with 54% of those that bought a vehicle in the last year discussing or considering this type of coverage. 82% of policies were purchased as an add-on from a dealer while 18% were standalone purchases.

Despite this, the findings also indicated that there had been a 16-23% reduction in sales and the prices of the add-on are 2-3% lower than previously. Additionally, there was just a 3% increase in uptake from standalone providers so it is clear that there have been positives from the intervention but it is also a difficult time for suppliers of value-added products which could be for a number of different reasons.

Improvements to be Made

Providers should look to make improvements to the way that information is distributed with 26% of potential buyers stating that they did not recall receiving GAP insurance documentation. This is clearly a problem and this part of the sales process needs to be improved so that motorists are fully aware of their options along with the key benefits that this type of cover can provide.

GAP insurance is a smart type of cover for motorists which could save them thousands of pounds if their vehicle is ever written off. Key changes were implemented to the industry by the FCA in 2015 which have benefited the consumer greatly but more needs to be done to encourage motorists to opt-in.