Single source provider of warranty programs, The Warranty Group, has said improving pricing transparency would be the single biggest move the Financial Conduct Authority (FCA) could make to help customers make more informed choices over GAP insurance.
Ciaron Whelan, divisional director at the Warranty Group said that prices of GAP insurance should be made freely available in all marketing material including the distributor’s website, rather than at the point of sale.
In August, an initial FCA report criticised selling practises of GAP insurance products, after it found the majority of consumers were unaware of how much they had paid for the product, and that 58% of consumers didn’t even consider another policy when purchasing the add-on.
In order to remedy this, the FCA recommended a ‘deferred opt-in’ system, whereby there would be a break between purchase of the primary product and the add-o GAP to limit the point of sale advantage held by those selling add-on GAP. In addition, the customer would need to be informed that GAP insurance was available elsewhere.
However Whelan suggested this could prove ineffective: "The FCA’s approach is based on the notion that competition will increase by restricting the sale of a policy at the point that a customer chooses to purchase a vehicle but there is no evidence to support this argument."
Instead he suggested adding the GAP price to all dealer marketing material so that customers could access the price before they entered into discussions with a dealer.
Whelan said; "The FCA’s approach is based on the notion that competition will increase by restricting the sale of a policy at the point that a customer chooses to purchase a vehicle but there is no evidence to support this argument.
While he thought some dealers may stop offering point of sale insurance products under the current FCA proposals, Whelan suggested this wouldn’t not be a major problem, as most dealers would stay due to the opportunity for profits, and the fact that GAP insurance is a genuinely useful product for customers.
Whelan said; "These dealers know that to achieve success, as with any insurance or warranty product, a structured approach is essential. It is a question of ensuring that GAP is introduced into the sales process at an appropriate time and is properly explained to the customer by a sales person who has been specifically trained to do so. In addition, there should be a fast, easy and effective administration process surrounding the policy."
The FCA’s part said it will consult on its proposed remedies in early 2015.