In Focus: Was Gap insurance ‘unfairly targeted’ by the FCA?

Guaranteed asset protection (Gap) was “unfairly targeted” by the FCA in the last year, with the way the market was shut down “unheard of”.

That was according to Paul Fuller, managing director at Gap provider AMS Insurance, who felt the regulator’s actions were affecting growth in the sector.

Gap is an add-on to motor insurance that covers the difference between a vehicle’s purchase price and its current market value.

Just two months after the new Consumer Duty rules were introduced in July 2023, the FCA issued a statement explaining that it felt the product was failing to provide fair value to some consumers.

And in February 2024, the regulator said that 80% of the gap market would be suspending sales. It later confirmed that it had sent further requests to the remaining 20% firms to pause sales of gap, in a second tranche of engagement.

In May 2024, the regulator said that some firms had restarted gap sales and that to start sales again, businesses needed to demonstrate that products provide fair value to customers, in line with FCA rules.

The action followed findings in the FCA’s 2022 fair value measures data, published 20 September 2023, which showed that only 6% of the amount customers pay in premiums for gap was paid out in claims.

Fuller felt that the FCA targeted gap based on this figure, but highlighted that while this may be the case in the first year, “it’s a three, four, sometimes five-year product”.

“So, as you roll that out, there will be more claims to pay,” he said.

Data comparison

AMS also shared its own data with Insurance Times, which showed that during 2022, 23.1% of premium was paid out in claims for add-on gap, while the average claims payout stood at £3,808, up from the FCA’s figure of £2,201 mentioned in its fair value measures report.

Meanwhile, for standalone gap, AMS said its figures showed 63.5% of premium was paid out in claims, with the average claims payout standing at £4,520, up from £536 suggested by the FCA.

The FCA’s figures are based on market-wide analysis, while AMS’ data is based on its own performance.

However, Fuller said that after speaking to other gap providers, “their numbers are aligned to ours”.

Fuller also highlighted figures from the FCA’s fair value measures report from 2023, published 21 August 2024, which showed that claims complaints for gap are below 4%, while claims acceptance rates are above 95%.

He explained: “Claims complaints for gap are very low, while others are a lot higher, so that would give you a little bit of concern over a different product.

“Additionally, claims acceptance rates for gap are extremely high, whereas other products were sitting at 53%, so that would show you there might be a problem with those products.

“We believe [the FCA] unfairly targeted gap and the way they have gone about it, [by] closing down an entire market, is unheard of.”

However, another reason the FCA acted on gap was because it said it had seen examples of some firms paying out 70% of the value of insurance premiums in commission to parties involved in selling gap policies.

Fuller said that, while certain areas of the market may have been getting higher commissions, “why not focus on that area”?

He added: “There are numerous distribution channels, why close the whole market?

“Because they may be not performing well and that’s they key thing here. They may not be performing well, but they may be performing well, so how can you shut down a market, put people’s jobs at risk, businesses at risk and the consumer at harm?

“The key things we really want to get out here is the harm that’s being caused to the consumer, to business and growth in the sector.

“The way that they handled this, people have looked from the outside and thought ‘wow, look at what they are doing to gap, where are they going to go next?’”

Product hesitancy 

While firms were allowed to recommence sales of gap products following the FCA’s action last year, data from Intelligent Motoring, published on 17 March 2025, showed that 90% of motor dealers are no longer offering the product.

Duncan McClure Fisher, chief executive at Intelligent Motoring, said that “many retailers appear hesitant to sell the product” following the FCA’s investigation.

He added: “With vehicle values normalising after Covid and electric vehicle residuals declining, claim payouts are regularly exceeding £20,000 to £30,000, demonstrating the critical protection gap cover provides. Many retailers appear hesitant to sell the product, with only around one in 10 advertising it to customers.

“This may be due to increased net rates and capped retail premiums, but flexible solutions are available to ensure dealers can offer fair value products that protect consumers, foster invaluable customer loyalty and provide an all-important revenue boost.

“We encourage those retailers hesitating to make a gap return to seize the opportunity.”

The FCA also stressed that the product had improved since its intervention, saying that firms had reviewed their gap offerings and worked to ensure improved value.

A spokesperson from the regulator said: “We put a pause on the sale of gap because we found consumers weren’t getting a fair deal.

“Firms that have worked with us and provided evidence of fair value have started to sell gap again and we are continuing to work with the market to achieve better outcomes for consumers.”