Major shake-up of motoring GAP insurance coverage as 80% of offers pulled

The GAP insurance coverage market has seen its biggest-ever shake-up, with 80 per cent of offers pulled from sale after the regulator stepped in.

The Financial Conduct Authority (FCA) right now stated that a number of insurance coverage corporations have agreed to pause promoting GAP insurance coverage, formally often called ‘Guaranteed Asset Protection’.

GAP insurance coverage covers a automotive’s loss in worth whether it is written off or stolen, as autos typically depreciate rapidly. 

It is normally bought as a standalone coverage or as an add-on to different kinds of economic offers, like automotive insurance coverage. 

But the GAP insurance coverage market has been dogged by controversy, because the FCA has been investigating over issues that hardly any insurance policies are ever claimed on.

This is Money has beforehand reported that the common GAP insurance coverage policyholder claims simply as soon as each 300 years. 

Now the regulator stated 80 per cent of the GAP insurance coverage market has agreed to cease promoting new insurance policies.

The FCA stated: ‘The FCA is anxious that the product is failing to offer honest worth to some shoppers.’

The regulator will now converse to GAP insurers ‘with the goal of bettering the worth of the product throughout all corporations’, the FCA stated right now.

In September, the FCA wrote to corporations promoting GAP insurance coverage asking them to show clients have been getting a good deal.

But the regulator was unimpressed with the responses and requested affected corporations to vary their insurance coverage offers to present higher worth to clients.

The FCA beforehand discovered that solely 6 per cent of the quantity clients pay in premiums for GAP insurance coverage is paid out in claims. 

For comparability, motor insurers pay out 64.51 per cent of premiums as claims and motorcycle insurers 60.67 per cent. 

The FCA has additionally seen examples of some corporations paying out 70 per cent of the worth of insurance coverage premiums in fee to events concerned in promoting GAP insurance policies, reminiscent of automotive dealerships.

FCA government director of shoppers and competitors Sheldon Mills stated: ‘I welcome the settlement by corporations offering GAP insurance coverage to pause gross sales whereas they work on bettering worth for purchasers.

‘GAP insurance coverage can present a helpful service to clients, however in its present kind it doesn’t provide honest worth and we wish to see enhancements.

‘We will proceed to work carefully with corporations as we stock out additional engagement to resolve these points and guarantee clients are getting honest worth merchandise that meet their wants.’

Why do not drivers declare on GAP insurance coverage? 

Some will not be conscious they even have this insurance coverage.

When this insurance coverage is bought, particularly as an add-on to a much bigger principal coverage, clients steadily don’t realise – or neglect – that they’ve the duvet in any respect.

When GAP insurance coverage is claimed on it virtually all the time pays out, suggesting many shoppers are unaware they’re coated within the first place.

In reality, standalone GAP insurance coverage has the best payout charge of any insurance coverage, at 99.3 per cent, with a mean declare of £529.86 – when clients truly make a declare.

That drops to 95.59 per cent for add-on GAP, with a typical declare being £2,201.