Drivers are being warned to check their car insurance policy as the regulator ends a critical protection measure which could affect millions of motorist from April.
Guaranteed Asset Protection (GAP) 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.
GAP cover has protected car 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.
While this cover is crucial, the Financial Conduct Authority (FCA) warned that it could be ripping off customers who accused the product of failing to provide fair value to some consumers. As a result the regulator decided to take action.
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The firms which have agreed to pause their GAP cover account for 80 per cent of the specific market
GettyIn September last year the regulator wrote to firms manufacturing GAP insurance products asking them to take immediate action to prove customers are getting a fair deal.
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 comes into effect from March 31.
The firms which have agreed to pause their GAP cover account for 80 per cent of the specific market.
They have agreed to not sell any more GAP insurance policies until they have made improvements to the level of value offered by their products.
The FCA found that only six per cent of the amount customers pay in premiums for GAP insurance is paid out in claims.
The regulator said it has seen examples of some firms paying out 70 per cent of the value of insurance premiums in commission to parties involved in selling GAP policies.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “GAP insurance can provide a useful service to customers, but in its current form it does not offer fair value and we want to see improvements.
“We will continue to work closely with firms as we carry out further engagement to resolve these issues and ensure customers are getting fair value products that meet their needs.”
In a similar move, the FCA recently warned insurers that they must make fair settlements if a vehicle is written off or stolen.
Numerous complaints to the Authority prompted the regulator to step in to ensure firms handle claims promptly and fairly.
GAP insurance provides cover for a financial shortfall that can happen when a customer’s vehicle is written off or stolen.
The FCA had previously warned that if firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.
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GAP insurance provides cover for a financial shortfall that can happen when a customer’s vehicle is written off or stolen
PAAcknowledging the impact the changes will have on customers with policies, the FCA said it will consider firms’ proposals for different distribution channels, and recognises that some channels may be able to address these concerns more quickly.
According to Motor Gap, the FCA has allowed a select few underwriters and providers of GAP Insurance an extension to sell the cover through April because they recognise the policy is valued by many UK motorists.