FCA slammed as ‘irresponsible’ after Gap insurance warning

ALA Insurance has slammed the FCA’s recent fair value warning to guaranteed asset protection (Gap) providers as “irresponsible”.

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

Last week (21 September 2023), the FCA gave firms producing this type of add-on insurance an ultimatum after finding the product may be failing to provide fair value under the new Consumer Duty regulation.

The regulator said it would intervene if firms did not take action within three months.

In a statement yesterday (25 September 2023), ALA founder and managing director Simon England said the FCA’s warning did not take account of the work of providers to offer customers fair coverage.

“Just a few years ago, the FCA were encouraging consumers to head online in order to find fair value,” he said.

“However, this messaging does not seem consistent with this latest warning, which barely recognises the hard work online providers do to provide reliable and honest coverage for their customers. I would go as far to say that the warning from the FCA is irresponsible.

“The FCA are going against their own goal to provide consumers with positive outcomes by giving out blanket ultimatums to an entire industry that could put drivers off policies which, when handled with integrity, are designed to protect us.”

Prices

In its warning last week, the FCA said its data showed cases where only 6% of the amount customers paid in premiums was paid out in claims.

And it added that it had also 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.

England called on the FCA to clarify the difference between the premiums charged to customers by online providers and the prices offered by dealerships, alleging that dealerships could be inflating prices.

“All Gap policies have the same net rates provided by underwriters,” he added.

”As markets mature and costs increase, of course providers have had to increase the price of premiums to cover costs.

“However, it is the dealerships who are inflating these prices even further, with some adding further costs to justify the 70% commission that has been highlighted by the FCA.

“This is where customers are paying well over the odds and not receiving fair value.”

He also urged consumers to shop around and to not take the cheapest option when it came to taking out Gap insurance.

“Remember, cheap isn’t always best if you’re looking for fair value,” he added.

“See what other customers are saying. The beauty of online providers is the higher standard to which they are held with customer testimonials, good and bad, just a few clicks away.”