The Financial Conduct Authority (“FCA”) has confirmed that several firms have been granted permission to recommence their sales of Guaranteed Asset Protection (GAP) insurance, following a series of regulatory actions aimed at ensuring fair value for customers.
The FCA’s decision comes after these firms demonstrated compliance with FCA rules, specifically ensuring that their GAP insurance products provide fair value to customers. One significant improvement noted is the substantial reduction in commission levels paid to those selling GAP insurance, directly translating to enhanced value for the end consumers.
Background and Regulatory Actions
In February this year, the FCA announced that multiple insurance firms had agreed to pause sales of GAP insurance following a request from the regulator. This was part of a broader effort by the FCA to engage with the market and ensure compliance with fair value principles under the Consumer Duty. A subsequent round of engagement occurred in March, where the regulator requested further information from firms as part of its assessment.
The driving force for the intervention was the FCA’s value measures data from 2022, which revealed that over 2.4 million GAP policies were in force. The data showed that only 6% of the premiums paid by customers were returned in claims, with some firms allocating as much as 70% of the premiums to commissions.
Firms Resuming GAP Insurance Sales
The following firms have been authorised to resume selling GAP insurance:
- Fortegra Europe Insurance Company Ltd
- Motors Insurance Company Ltd
- Amtrust Europe Ltd
- Financial & Legal Insurance Company Limited
The FCA’s decision to allow these firms to continue selling GAP insurance is based on their current compliance efforts. The FCA expects all firms to regularly evaluate their products to ensure they continue providing fair value to customers and to update their approaches as necessary.
Ongoing Oversight
The FCA will continue to scrutinise proposals from other firms to enhance customer value. Under the Consumer Duty, firms are obligated to provide fair value, ensure their products and services meet customer needs, and deliver good customer service.
