Guaranteed Asset Protection (GAP) Insurance: A Competition Remedy!

The Financial Conduct Authority has released their Consultation paper, Guaranteed Asset Protection Insurance: A Competition Remedy. Part of their proposals are to limit the point-of-sale offer of GAP insurance when product is sold by a dealer or distributor of motor vehicles. The FCA intends for the new rules to come into force in September 2015. The FCA’s key proposals for motor dealers who wish to sell GAP Insurance are:-

1) To provide information that will encourage customers to shop around

2) To advise customer’s that they can purchase GAP Insurance elsewhere

3) To introduce a deferred opt-in or break in the sale, whereby a dealership’s salesperson can start the sales process but cannot conclude the sale for a defined period of time. Allowing customers time to consider whether the product is of benefit to them and provide the opportunity to shop.

The FCA said it wants to promote competition in the £160 million guaranteed asset protection (GAP) insurance market, including limiting the point of sale advantage for GAP sales made on the vehicle showroom floor and making it easier for consumers to explore alternative options available to them.

GAP insurance is usually offered alongside car sales. The study found that consumers were often buying without having previously considered the product or shopping around for alternatives, concluding were customers getting the best deal. Christopher Woolard, director of policy, risk and research at the FCA, said: “Earlier this year we said that firms must put consumers’ interests first. It’s important that people are able to make informed decisions about whether they need GAP, and if they do, the best place to buy it.” “Today’s proposed rules are intended to help consumers from paying too much for a product that may not be offering good value for money”

This would indicate that consumers are buying products that offer poor value for money, the monopoly that motor dealers enjoy puts them in a very strong position. With little competition at point of sale there is no pressure on motor dealers to reduce price. This is in stark contrast to GAP insurance sold via an insurance broker where the FCA has confirmed:- “GAP insurance is not sold as part of a motor vehicle sale, we propose that these sales should be excluded from the new requirements. For example, if GAP insurance is sold as an add-on to motor insurance (and not sold at the same time as the motor vehicle) then we propose this circumstance should be excluded from the scope of the proposals”.