Car dealers seek ways to pre-empt FCA inquiry into add-on insurance products

By Debbie Kirlew

As the used-car-buying process is carried out almost entirely online and dealers begin to pre-empt the outcome of the Financial Conduct Authority (FCA) investigation into add-on insurance products, dealers have two big challenges to tackle if they are to maintain and strengthen their insurance business.

F&I training and recruitment provider Adroit Automotive director Adrian Foster believes dealers will have to become more consultative in their approach. He envisages offering a wider product portfolio of eight to 10 products with a view that a consumer will select three, to both ensure consumers buy products based on their needs and to avoid potential pitfalls over commission being the overriding incentive in offering one particular product.

“Dealers will have to think more about the future business that products such as minor damage insurance and MoT insurance will bring, rather than just the short-term profit which is currently delivered by products such as GAP,” he said.

“The FCA has made it very clear that they are looking at whether profits of add-on products are excessive and if equivalent products are available cheaper elsewhere.

“The days of being able to gain high profits from GAP are well and truly gone and the GAP supply chain will have to shorten. Dealers need to accept a reduced margin in single products, but will need to sell more of them to achieve the same return while ensuring they are accurately matching products to the customer’s needs.

“Commission disclosure is a likely outcome of the investigation and dealers may even be obliged to inform consumers that the products can be bought elsewhere. Suppliers and dealers already exploring these avenues will be best placed to move forward while those who continue to pursue pure profit are likely to find such a policy to be woefully short-sighted.”

♦ See our report on the AM Hit for Six conference for more on the FCA and insurance.

In just such a move, an AM100 dealer group has implemented the Association of British Insurers (ABI) guidelines on GAP across the board, while robust policies ensure all insurance products are subject to the same standards and there is consistency of pricing at all businesses.

The group’s newly appointed F&I manager commented: “The ABI guidelines include ensuring policies are transferable and cancellable as well as making sure incentives cannot be interpreted as mis-selling. Our F&I philosophy is based on offering a suite of products to customers with consistent and fair prices. GAP is in the limelight, but I think those principles need to be applied to all insurance products so customers are able to make a genuinely informed decision.”

Change is most definitely in the air and many other suppliers are already working with their dealer partners to find new ways of promoting insurance products while acting within the spirit of the FCA.

Steve Burgess, head of new business at Mapfre Abraxas, said: “It’s very likely that there will be changes to the model that exists today. Our stance remains that dealers should be offering the products that are appropriate for their used car customer and stock profile. A good supplier should be working with dealers to understand their customers and to offer products that meet those customers’ needs. That principle applies now and will continue to apply once the results of the FCA review are known.”

It’s a view shared by Car Care Plan chief executive Tim Heavisides, who said: “It’s fair to say there’s a high level of uncertainty surrounding the possible outcomes of the FCA review, but we should be prepared for the market to change when that review is concluded.”

Heavisides said Car Care Plan has rolled out dealer compliance health checks and new reporting in relation to product selling prices to ensure sales activity is appropriate.

Mike Macaulay, AutoProtect’s corporate development manager, also believes a wider portfolio of products is likely and welcome as it offers dealers increased opportunity: “The traditional showroom model is coming under increasing pressure. Regulation, digitisation and a more empowered and increasingly confident consumer are the reasons for this, but rather than a threat we see them as an opportunity to increase sales. However, it will require a change in approach in some showrooms.

“Many consumers have emotionally ‘bought’ their car online in pre-purchase searches and as such they visit the showroom for reassurance and to see/touch the car they plan to buy. Offering an appropriate protection portfolio should be seen as treating the customer fairly and helping to promote the reassurance the customer is seeking.”

A challenge is finding ways to promote GAP, paint protection, smart repair and other insurance products in advance of the point of sale. Used car buyers now make few visits to dealerships during their hunt for their next car. When they do attend to do the deal, dealers must avoid overwhelming customers with information and add-on choice.

The same dealer group mentioned earlier is already revolutionising the way would-be used car buyers are introduced to insurance products. Its revamped websites, with video explanations of insurance products, are due to be relaunched in the first quarter of 2014 and sales executives and business managers are being trained to engage consumers in live chat conversations on F&I products as well as the vehicle.

The group’s F&I manager said: “Our success at creating insurance product awareness online is an unknown quantity at the moment, but we will be monitoring traffic, enquiries and live chat conversations and will evolve the website.”

James Tew, chief executive of web finance tools provider iVendi, which is developing methods to promote automotive insurance products online, said: “The vast majority of these products are sold at the point of sale, which is how most of the insurance providers have trained their dealer partners and I think this will become one of the biggest challenges.

“Products like GAP are not a consideration when a customer is looking to buy a car, compared to finance, which is critical in the search phrase. We are currently working on how we can inform and educate the customer in advance of their visit to the dealership.”

Burgess, of Mapfre Abraxas, said the fall in average visits  to dealerships, from eight to fewer than two, means customers are shopping around online. “Therefore, it’s logical to suggest that dealers should, as a minimum, be looking to raise awareness of their insurance products online in an innovative and engaging way.”

Sue Myers, who has just joined GForces as head of sales process from Marshall Motor Group, where she was sales process finance and insurance director, believes promoting insurance products online is an absolute must for dealers. Her remit includes helping dealers enhance their insurance product offering digitally while complying with the FCA and enabling customers ‘to compare apples with apples’.

She said: “Online tools assist retailers in the management of their F&I offerings, enrich the customer’s experience during the car-buying process, help turn leads into sales, and write additional finance business. The integration of these products online means they are included as a key product, integral to the online buying process, rather than as an additional product for the retailer to sell. This will, of course, mean that reward strategies for sales executives selling products such as GAP insurance will need to be evaluated.  

“The motor retail sector has undergone a digital revolution over recent years, but vehicle finance hasn’t entirely kept pace with developments in other areas. It’s now heading in the right direction and more retailers are starting to incorporate insurance products into their digital offering, but there is some way to go to before all retailers have the right mindset.”