March 5, 2024


by: kiran


Tags: "Regulation"

FCA Takes a Bite out of GAP Insurance

Key Messages:

The FCA has been showing its teeth in what may be seen as the future approach to regulation under the Consumer Duty.

Multiple insurers have agreed to pause sales of Guaranteed Asset Protection (GAP) insurance following a “request” from the FCA. Those which have agreed to this make up 80% of the GAP market.

It has been no secret that the FCA have been concerned that GAP doesn’t provide fair value to some consumers – the latest fair value measures data showed that only 6% of the amount customers pay in premiums for GAP is paid out in claims (for comparison, motor insurers pay out 64.51 percent of premiums as claims). There are also some examples of firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain!

In September they wrote to firms manufacturing the product with a three month ultimatum – take immediate action or suffer FCA intervention – clearly unsatisfied with the responses to this request, sales are now “paused”.

The firms involved have committed to make changes to the product so that it provides better value to customers and it remains to be seen what improvements will be made but it may include changes to the way in which the product is distributed including the commission arrangements that are in place.

Clearly, in the meantime, the firms affected by this will be suffering a hit to their P&L – not only due to sales being paused, but also the cost of the remediation that is needed.

What Firms need to consider:

This acts as a reminder that all firms should be assessing and checking their products to ensure they are providing fair value to their customers.

Where they identify any areas for concern – or the figures suggest that value is not being provided, they should ensure that they take immediate action prior to the FCA having to intervene.

If you need any assistance with assessing the fair value of your products, please do not hesitate to contact Padda Consulting who will be happy to provide an independent view.