The sale of guaranteed asset protection (Gap) insurance has been suspended by the majority of providers after the Financial Conduct Authority (FCA) requested an end to policies that don't offer 'fair value'.
It follows a warning from the FCA in September that insurers had three months to prove their products meet the standards expected by them under the new Consumer Duty rules .
Gap insurance is usually sold as an add-on to car insurance but can be bought as a standalone policy. It's meant to cover the difference that can occur between the price you paid for your new vehicle and the amount your insurer is willing to pay for it should it get stolen, or written off, soon after buying it.
Here, Which? explains why the regulator is clamping down on Gap insurance and what you should do if you think you've been mis-sold a policy.
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Is Gap insurance a fair deal? That's the question the regulator asked after its Value Measures Data
report found only 6% of the amount customers pay in premiums is given out in claims.
The data, which covers January to December 2022, also found firms in the distribution chain – such as motor dealerships – were being paid up to 70% of the value of insurance premiums in commission by providers.
The FCA wrote to insurers five months ago, asking them to prove the policy offered 'fair value'. But, after assessing the responses, the regulator has decided to take further action, requesting insurers suspend the sale of Gap insurance. 80% of firms in the market have now heeded the call and agreed to make improvements.
Sheldon Mills, the FCA's executive director of Consumers and Competition, said: 'I welcome the agreement by firms providing Gap insurance to pause sales while they work on improving value for customers. Gap insurance can provide a useful service to customers, but in its current form it does not offer fair value and we want to see improvements.
'We will continue to work closely with firms as we carry out further engagement to resolve these issues and ensure customers are getting fair value products that meet their needs.'
The FCA’s latest value measures data showed that, in 2022, there were more than 1.8m stand-alone Gap policies and over 567,000 add-on policies in place.
If you have a policy it will still be valid, but if you're looking for a new one it might be harder to find a deal.
Which? asked the FCA how the pause will impact Gap insurance customers – both current and those interested in taking out a new policy:
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If you think a firm isn’t following the Consumer Duty or you believe you've been mis-sold a policy, the first step is to write to your provider. If that fails, you can ask the Financial Ombudsman Service (FOS) to investigate.
The process for complaining about a Gap product with the FOS is the same as for any type of insurance. Just visit the ombudsman's website and fill in a short online form
, including as much evidence as you can.
After considering all the evidence, the FOS will write to you and the company with the decision and if there is to be an 'award'. If your complaint is upheld, then this letter will include details of what the company must do to put things right.
The most complained about Gap issues received by the FOS include delayed claims, claims being declined and mis-sold policies. However, FOS annual data shows a steady decline in the number of complaints over the past five years.
In 2018-19, the FOS received 230 new complaints about Gap cover. But by 2021-22 that had dropped to 142 and there were just 84 new complaints in 2022-23.
The FOS's next quarterly complaints data won't be published until sometime next month, but the watchdog told Which? it has so far received fewer than 30 complaints about Gap insurance for both the first and second quarters of this financial year.
While the number of grievances upheld by the FOS dropped from 32% in 2018-19 to 30% the following year, it's remained fairly stable since 2020-21 when it was 27%. In 2021-22 it rose slightly to 29% and stood at 28% in the last financial year.
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