Will the latest FCA intervention leave a GAP in the market?

GAP insurance is the latest product to come under FCA fire as the 2022 Value Measures data indicated that GAP products do not offer fair value to customers – and the regulator’s follow-up work has only served to compound and reinforce this view.  But why is the regulator stepping in now, and what do they hope to achieve?

In the short term, there might be permission suspensions, and down the road, we could see SMF sanctions. Insurers may exit the market, and potential new players might hesitate due to perceived risks. However, despite the FCA’s concerns about overall value, there’s still significant customer demand for protection against such losses.

We think the real challenge for the market isn’t whether to offer GAP insurance, but rather how they should respond, review, and demonstrate to the FCA that GAP can offer real value to consumers, at a fair price.

Arguably insurers have already been responding to market conditions, many by reducing commissions, others by increasing claims pay outs, ratios, and enhancing cover, following initial FCA warnings in late 2023. Is this a case of the FCA not understanding the pace of change within the market? Or is their objection the method of distribution or just the next round in the debate as to whether commission payments are acceptable/ excessive, and who determines where that acceptable line is – as the FCA seem to be running a secret auction on commissions at their discretion.

With the FCA’s intervention, GAP insurers have no choice but to respond proactively and revisit their distribution arrangements and cost base. To determine what commission levels are acceptable to both the regulator and the car dealerships/distributors. And reconsider and review what is and/or should be a fair price charged to consumers for these enhanced versions of these products, not just for GAP but for all motor add-ons and warranty products more generally.

Here at GreenKite, we are attuned to the commercial implications of the FCA’s recent decisions. We are already supporting various firms in this and have a dedicated team who are ready to assist if you have concerns or questions about GAP or fair value more generally. So please reach out to one of our assurance team members if you’d like to know more about how we can help.

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