Britain’s financial watchdog said on Friday several insurers have agreed to suspend sales of policies that cover the depreciation of cars after it said it was worried the deals did not offer value for money.
The suspension relates to so-called guaranteed asset protection (GAP) insurance meant to cover the difference between a car’s purchase price and its market value when a customer makes a claim after a theft, a crash or for some other reason.
The insurers that had agreed to pause sales accounted for 80% of the market, the regulator said.
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The FCA said it would carry out a second round of talks with the rest of the GAP market to improve value for money, and those firms have agreed not to use new distributors of GAP insurance in the interim.
“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,” Sheldon Mills, the FCA’s director of consumers and competition, said in a statement.
The watchdog asked insurers last September to take immediate action to show that customers were getting fair value from GAP policies, but it was not satisfied with the responses and arranged a pause in sales.
“This action follows findings in the FCA’s latest fair value measures data, which shows that only 6% of the amount customers pay in premiums for GAP insurance is paid out in claims,” the FCA said.
“The FCA has seen examples of some firms paying out 70% of the value of insurance premiums in commission to parties involved in selling GAP policies.”
It marks the watchdog’s second intervention in the auto market this year after opening an investigation in January into commission charged in car financing deals from banks and others.
The FCA introduced tougher consumer protection requirements in July last year, known as the consumer duty, giving it more leverage to crack down on poor value.
(Reporting by Huw Jones; editing by Carolyn Cohn and Andrew Heavens)
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