The Financial Conduct Authority (FCA) is due to make a number of forthcoming changes in relation to the way in which GAP insurance is sold as an add-on product by motor dealers and finance houses in the UK. This is due to a number of concerns regarding the lack of transparency involved in add-on GAP sales, high price mark ups and a lack of understanding of GAP insurance by consumers.
As a consequence of the FCA’s findings, the sales methods adopted by dealers and the high prices they charge will be placed under further scrutiny. The likely changes to regulation will place dealers under an obligation to:
- Inform customers about alternative suppliers of GAP insurance – the FCA found that 58% of add-on buyers did not shop around for alternative policies before purchasing, with a large number of consumers unaware that they could purchase cover elsewhere.
- Ensure transparency regarding the add-on GAP cover and the price – according to the FCA 69% of add-on buyers could not accurately state the price they had paid.
- Make certain the customer is fully informed about the cover and that policies are not simply added on to sales without the knowledge of the customer – 19% of add-on buyers were not aware that they even owned the product when asked up to 4 months after purchase.
This will have an impact on the way consumers behave, encouraging them to shop around and increase their sensitivity to price, which is intended to further increase competition in the marketplace. Even now, before these changes are put in place, customers are increasingly looking to online providers for better information and a better value, higher quality alternative to the policies sold by dealers and finance companies.
Simon England, Managing Director of ALA, commented “The proposed changes in the report by the FCA are, we think, well overdue. I am confident that consumers will increasingly be able to make an informed choice and save themselves a significant amount of money too, without compromising on cover”
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