In its final policy statement on add-on GAP insurance published last week, the FCA has announced new rules for firms distributing GAP insurance in connection with the sale of a motor vehicle (add-on GAP) to encourage consumers to shop around and to increase competition.
From 1 September 2015 when the changes come into force, firms will be required to provide customers with prescribed information including information on the total premium of the GAP policy, significant features of the policy, and the fact that GAP cover is sold by other distributors.
Firms will also be required to introduce a deferral period of two clear days from the date the prescribed information has been provided, before the distributor can contact the customer to conclude the GAP sale. Firms will only be able to conclude the contract the day after the prescribed information is provided if the customer initiates the conclusion of the contract. GAP insurance therefore cannot be introduced and sold on the same day.
These changes, the FCA believes, will help consumers be more engaged when making decisions about purchasing the product and will limit the point-of-sale advantage of add-on distributors, identified in the FCA’s final findings report in July 2014.
Other findings of the July 2014 report included:
- 59% of add-on customers had not thought about buying GAP insurance until the day they bought it.
- Add-on GAP insurance customers had a worse understanding of the product than standalone GAP insurance purchasers.
- Almost half of customers reported being unaware that they could have bought GAP insurance other than at the point of sale. Only 19% of GAP insurance customers shopped around.
- Add-on GAP insurance prices can be significantly higher than stand-alone prices.
- GAP insurance sold as an add-on is often poor value for customers, with only 10% of retail premiums for add-on GAP insurance being paid out in claims (a very low claims ratio relative to other products).
The FCA believes that the new prescribed information and deferred opt-in rules offer the most effective and proportionate remedy package, despite market suggestions that alternative remedies such as a 30-day cooling off period (with a post-sale reminder to customers) or a mandatory comparison website were more suitable.
The new rules will come into force on 1 September 2015, in order to ensure as many customers as possible who will purchase GAP insurance in the remainder of 2015 will benefit from the remedy.