On 12 December 2014, the FCA published a consultation paper, CP14/29, which sets out proposed changes to the guaranteed asset protection (GAP) insurance market. In July 2014, the FCA published its confirmed findings from its market study on the general insurance add-ons. The report examined how competition is affected by selling general insurance products as an add-on to a primary product.
The FCA found that competition is not effective where products are sold as an add-on and that markets for these products are broadly not working for consumers. It proposed four remedies, one of which related specifically to GAP insurance. The GAP insurance remedy is the subject of this consultation paper. The GAP insurance market was highlighted in particular because of the pronounced impact the add-on mechanism has in this market. Most of the over one million GAP insurance policies in force were sold as an add-on during the motor vehicle sales process.
The FCA’s proposed rules for GAP insurance seek to implement two main elements:
- a deferred opt-in period for customers when add-on GAP insurance is sold as part of buying a vehicle. This means GAP insurance cannot be introduced and sold on the same day. The deferral period would start when the customer is given certain prescribed pre‑sale information and end four days after that information is provided (the four days includes the day the prescribed information is provided). The FCA also proposes a variation to enable a confident customer to make the purchase sooner if they wish to do so, at their own initiative.
- improved information about shopping around. This is part of the information that would trigger the start of the deferral period, and is intended to provide the customer with a better opportunity to determine whether they need GAP insurance and, if so, to shop around for the right product for their needs.
Comments are requested by 13 March 2015. The FCA will publish a policy statement, together with the finalised rules by June 2015. It intends the rules to come into force on 1 September 2015.
The FCA intends to consult in early 2015 on proposals relating to the three remaining remedies proposed in its July 2014 market study. The FCA says that firms should also be aware of a recent Supreme Court judgment (Plevin v Paragon Personal Finance Limited) related to commission disclosure. While it does not affect the proposals in CP14/29 directly, the FCA is considering the issues raised by the judgment and firms may wish to take their own advice in relation to it.