On 10 June 2015, the FCA issued a Policy Statement (PS15/13) containing rules on guaranteed asset protection (GAP) insurance which are aimed at empowering consumers when making decisions about purchasing add-on GAP insurance, and limiting the point-of-sale advantage of add-on distributors. The FCA also considers that the rules will increase competition between add-on (i.e. GAP insurance sold together with a vehicle) and stand-alone GAP insurance providers.

Where a policyholder’s vehicle is written off, his/her GAP insurance will cover him/her for the difference between the amount paid out by his/her vehicle insurance policy, and an amount stated in (or calculated under) the GAP policy, which is generally the price paid for the vehicle.

The FCA has spent nearly two years investigating the sale of GAP insurance, which it first looked at as part of its general insurance add-on market study, before issuing a specific consultation on remedies to address the issues it had uncovered. The FCA found that a large number of customers did not think about buying GAP insurance until the day they bought it, that purchasers of add-on GAP insurance had a worse understanding of the product than purchasers of stand-alone GAP insurance, and that the prices for add-on GAP insurance could be significantly higher than those for stand-alone products.

The new rules:

  • Require firms distributing add-on GAP insurance to provide information which encourages customers to shop around and think more carefully when making decisions about purchasing GAP insurance.
  • Introduce a deferral period, prohibiting firms from selling a GAP insurance policy on the same day that it is introduced to a customer.

The new rules will come into force on 1 September 2015, and can be found here:http://www.fca.org.uk/your-fca/documents/policy-statements/ps15-13

The FCA has identified the add-on market as an area for concern and considers that consumers may be over-paying for add-on products by at least £108 million a year, either as a result of buying inappropriate or unsuitable products, or receiving poor value for money from the products. These rules on GAP insurance are likely to be followed by further requirements relating to add-on products generally, both in the general and life sector. The FCA is currently consulting on a ban for “opt-out” sales (sales where a product is automatically added to a sale and has to be voluntarily removed by a customer, such as by unticking a pre ticked box) and improved information requirements for add-on selling.

We also understand that the FCA is expected to publish a discussion paper shortly which will consider introducing a “value for money” measure for general insurance products.