The Financial Conduct Authority’s (FCA) intervention on Guaranteed Asset Protection (GAP) insurance has resulted in sales of the product dropping by up to 23%.
In September 2015, the FCA intervened in the add-on GAP insurance market. The regulator felt customers were potentially being mis-sold items, and installed a requirement for vehicles sellers to provide more information to customers and allow a pause in the sales process. A prior report in July 2014 by the FCA found that estimated total consumer overpayment for add-on GAP insurance was around £76m
to £121m a year (out of an estimated market size of £152m).
Since then, add-on GAP insurance sales have dropped 16-23% by the FCA’s own estimates. The FCA also clarified that “GAP insurance can be a suitable purchase for consumers who value the product, and also value convenience and the opportunity to buy it in person”.
Among consumers that the FCA says could genuinely benefit from GAP insurance, sales dropped between 2% and 3%, though by the regulator’s own admission “this impact is not as significant as we expected”.
The average GAP insurance price increased in the time period since FCA action, from £362 to £367. The FCA has attributed this to further factors than its own intervention. For instance, in its report the FCA was clear to point out that “consumers are buying more vehicles on finance, thereby reducing consumers’ financial constraints at the point of buying the vehicle. This, in turn, might have increased consumers’ ability to pay for add-on GAP insurance”.
The FCA study into its effect of GAP insurance included an econometric analysis of 4.3 million sales, and a survey of 1,000 consumers who had bought cars and may have considered GAP insurance.
In August, Ian Mason, partner at Gowling WLG, wrote in Motor Finance about the FCA’s priorities for the future. He identified the regulator’s approach to enforcement and the culture of the organisation as key talking points leading up to its publication of its review into the motor finance industry, anticipated for this month.