GAP insurers still failing to demonstrate fair value risk FCA crackdown

Many insurers and brokers are still failing to demonstrate they are offering fair value to customers despite industry efforts to improve governance and oversight regarding guaranteed asset protection (GAP) products.

GAP insurance is an add-on to motor insurance and covers the difference between a vehicle’s purchase price and its current market value.

Earlier this year, the FCA said its data showed that there had been cases where only 6% of the amount customers paid in premiums was paid out in claims with some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as dealerships.

As a result, firms offering this type of insurance were given a three-month ultimatum by the regulator in February to take immediate action, or risk intervention.

Some firms were allowed to resume offering GAP add-on sales in May.

In a new report, the Financial Conduct Authority (FCA) flags ongoing challenges particularly in information sharing between insurers and brokers, as well as in accurately identifying target markets.

Matt Brewis, director of insurance at the FCA, stressed the importance of fair value, stating: “Insurers must ensure their customers receive fair value. While progress has been made, we continue to observe numerous instances where insurers and brokers lack the necessary information, governance, or oversight to guarantee consistently good outcomes for their customers.

“All insurance firms should heed our findings and implement improvements where necessary. We will continue to take action when we identify poor value, ensuring that consumers can trust the insurance products they purchase.”

“We know from aggregate motor market data that motor insurance consistently made an underwriting loss throughout 2023 despite significant increases in premiums,” the FCA stated in its latest report covering the second full year of general insurance value measures data between January to December 2023.

“So this may be a feature of our data picking up the significant premium increases when the policies were sold during 2023 - but not yet reflecting the claims that will be made on those policies - those claims may be settled during 2024 or in later years.”