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Eight out of ten insurance coverage companies have agreed to pause gross sales of Assured Asset Safety (GAP) insurance coverage on the request of the monetary watchdog.
The Monetary Conduct Authority (FCA) mentioned it is going to perform a second spherical of discussions with these GAP suppliers that can proceed promoting the product though it mentioned that these have agreed to not use new GAP distributors within the interim.
GAP insurance coverage is usually offered alongside automotive finance. It covers the distinction between a car’s buy value or excellent finance and its present market worth, within the occasion it’s written off earlier than finance has been repaid.
The FCA is nonetheless involved that the product is failing to supply worth and in September wrote to companies asking them to take fast motion to show prospects are getting a good deal.
The regulator now says that after assessing responses, it was nonetheless not glad and that as a part of the request to pause gross sales, companies have dedicated to make modifications to their GAP merchandise.
This motion follows findings within the FCA’s newest honest worth measures knowledge, which exhibits that solely 6% of the quantity prospects pay in premiums for GAP insurance coverage is paid out in claims.
It mentioned it had seen examples of some companies paying out 70% of the worth of insurance coverage premiums in fee to events concerned in promoting GAP insurance policies.
Sheldon Mills, FCA government director of shoppers and competitors, mentioned: ‘GAP insurance coverage can present a helpful service to prospects, however in its present type it doesn’t provide honest worth and we wish to see enhancements.”
The regulator mentioned it is going to think about companies’ proposals for various distribution channels, including that it recognises that some channels might be able to deal with its issues extra rapidly.
Late final month, an FCA spokesperson advised AM, in a press release: “We’re disenchanted with the market’s response to our warnings to enhance the worth of GAP insurance coverage for purchasers. We’ve got advised companies to take fast motion to point out how prospects are getting a good deal or we are going to intervene,” including that it ‘had no intention of banning GAP insurance coverage as a product line’.
Many Insurers have declined to speak brazenly about GAP though some have already culled their GAP product.
Nevertheless one AM100 vendor, who most well-liked to not be named, advised AM: “I truly assume the product is an effective one when it’s offered and priced in the correct manner,” though admitted that he had not seen anybody volunteering to promote GAP in another way, take a contemporary have a look at the product or to take a look at promoting it otherwise.
The FCA added that it has carried out important work up to now aimed toward addressing points with GAP insurance coverage, together with a market research on insurance coverage add-ons and introducing new guidelines particularly for GAP insurance coverage.
The FCA’s evaluation of the worth offered by GAP insurance coverage consists of knowledge going again to 2008 and pointed to a 2014 market research that indicated that 10% of premiums had been paid out in claims, on common, between 2008-2012.
Since then, the FCA mentioned it has launched guidelines strengthening how insurance coverage companies ought to assess whether or not their merchandise are offering honest worth.
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