The Financial Conduct Authority has just told AM it has "no intention of banning GAP Insurance", in response to unsubstantiated reports that the product must be scrapped this year.

The insurance industry regulator has made its concerns about the sales practices around GAP insurance for several years, and lately warned that customers were not being given good value from GAP, also known as return to invoice (RTI) cover.

It is concerned that GAP insurance often earns high revenues for insurers and their dealers/brokers, but less than £1 in every £10 spent by consumers on GAP is ever paid out to help claimants, and it has warned the industry that it wanted to see rapid changes to give customers a fair deal.

Since 2015 dealers were required to give car buyers a 'cooling off period' before selling them GAP, because the FCA identified the dealers were benefitting from a significant advantage at the point of sale rather than facilitating the customer's ability to shop around for value.

Dealerships had a 97% share of the GAP insurance sales at that point, and the total value of the GAP insurance market in 2014 was estimated to be £244.8 million..

Today, an FCA spokesperson told AM, in a statement: "We’re disappointed with the market’s response to our warnings to improve the value of GAP insurance for customers. We have told firms to take immediate action to show how customers are getting a fair deal or we will intervene.

"We have no intention of banning GAP insurance as a product line." 

Insurers have declined to talk openly about GAP. Some have already culled their GAP product.

However one AM100 dealer, who preferred not to be named, told AM: “I actually think the product is a good one when it’s sold and priced in the right way."

However, the dealer said he has not seen anyone volunteering to sell GAP differently, take a fresh look at the product or to look at selling it in a different way.

GAP providers are waiting to see what the FCA does.

The dealer said: “No one wants to sell something that has a whiff, a bit like PPI. I don’t think there’s anything wrong with GAP as a product, I just think there’s a problem with the price and rate of commission.”

Some insurance companies may be watching the FCA's current review of historic motor finance discretionary commission agreements with interest, however, given that in the past many dealers were allowed to sell their GAP policies at 60% to 70% profit margins.

That review was prompted by cases upheld by the Financial Ombudsman Service, which ruled some customers were unfairly treated because the dealer/broker could incfluence their own profit earned from the product, without the buyer's knowledge.