Drivers handed major car insurance update amid significant concerns about policy misuse

The previous pause was due to the watchdog finding several cases of failings by insurance companies and intermediaries to provide fair value to some consumers and reaping high commissions.

A GAP policy stops drivers from losing out and risking a shortfall from their insurance providers who may not be willing to cover the full costs of a new car.

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The protection is an essential car insurance add-on which covers the difference between the amount the insurance provider pays for a written-off vehicle, for example, and the amount a driver needs to pay to buy a new or equivalent model.

While valuable, after a series of misgivings was unveiled, the FCA stepped in and wrote to firms asking them to take immediate action to prove drivers are getting a fair deal.

The review found that only six per cent of the amount customers paid in premiums for GAP insurance was paid out in the claims.

Shockingly, some firms paid out as much as 70 per cent of the value of insurance premiums in commission to parties involved in selling GAP insurance.

However, after assessing the responses to this request, the FCA claimed it was “not satisfied” and made an enforcement to pause sales of GAP products with certain insurance firms which came into effect from March 31.

The firms which agreed to pause their GAP cover account for 80 per cent of the specific market.

Following the investigation, the regulator said it would allow firms to resume sales of GAP insurance but with the condition that they maintain lower levels of commission.

Sheldon Mills, executive director of consumers and competition at the FCA, said the regulator acted when its data showed customers were not getting a fair deal for the products.

He said: “I’m pleased that, following constructive engagement with industry, a significant proportion of the market is now able to restart sales.

“GAP insurance can provide a useful service to customers, and we continue to work with the rest of the market to address our concerns.”

The regulator agreed to allow a number of major car insurance providers to begin reselling GAP insurance again.

As of 2022, the FCA detailed how there were over 2.4 million GAP policies in force across the UK.

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The FCA had previously warned that any firm not complying with the rules would face a full range of regulatory tools, including enforcement action, against firms showing signs of misconduct.