Blog by Rob Dockerill, CEO of Autoguard Warranties
GAP insurance is continuing to boom, as more and more consumers are facing the reality that their insurers are unlikely to pay out on the full value of their vehicles in the event of a write-off.
GAP insurance is now more affordable than ever before and consumers are reassured by the improved protection provided by the FCA.
With new cars potentially losing up to 60 per cent of their value after three years, it’s no surprise that sales of GAP products are on a steep rise. According to our figures, GAP products sold through dealers have risen by 28 per cent year on year. We are also seeing a growing trend, with consumers opting for a combination of traditional GAP and Return to Invoice products, to fully protect their assets.
GAP insurance can provide worthwhile cover, but only if consumers choose the right policy. Frequently GAP cover is competitively priced, but consumers are often attracted to cheap policies, through small online brokers, which provide limited or no cover in reality.
Dealers have a great opportunity to educate consumers about what to look for when purchasing GAP insurance and upsell reputable GAP insurance products.
So what can dealers give customers who are thinking of buying GAP insurance? Below are the few key things that consumers need to look out for:
1. Limited claim periods: These can be unrealistically short, often only 30 days. Consumers may not be able to claim on their GAP cover if, for example, their car is stolen and isn’t recovered within the limited claim period.
2. Pre-approval: This doesn’t allow consumers to accept a claim settlement offer from the vehicle’s insurer without the GAP insurer’s permission. It effectively means the GAP provider can avoid paying out by continually rejecting offers from the customers motor insurer.
3. Small print: GAP cover is beset with terms and conditions, caveats and disclaimers – so it is very important that consumers read the small print, especially on the length of the policy; the excess; any significant exclusions; how to claim; and cancellation terms.
4. Underwriters: A policy offered by a non-UK insurer may not have the same level of consumer protection as a policy offered by an authorised UK insurer.
5. Five-star ratings: If a GAP broker, insurer or comparison website has a five-star rating, consumers should not take any notice of it. GAP brokers can pay for these and they tend to be based purely on the price charged rather than the cover provided.
6. Check the UK Financial Services Register to ensure that the firm offering you GAP insurance is authorised and regulated by the FCA or is an Appointed Representative of such a firm.
While consumer appetite for GAP products is growing, this is against a back drop of increased regulation by the FCA. New ‘add-on sales’ rules were introduced in September 2015 which required that customers are provided with information to help them shop around; introduced a pro-active sales deferral period of four days for new and used vehicles; and ended the introduction and sale of GAP insurance on the same day.
Dealers selling Gap insurance must now provide consumers with the following information, before they buy a policy, in addition to meeting other regulatory disclosure requirements:
1. The total premium for the GAP insurance – separately from other prices.
2. The length of the policy.
3. The significant features and benefits, significant and unusual exclusions and limitations, and cross-references to the relevant policy document provisions.
4. That the product can be sold elsewhere from standalone providers.
5. Whether buying GAP insurance is an optional or compulsory add-on to the sale of the vehicle.
6. The date that the above information was provided to the customer.
Despite the FCA’s recent new regulations, the £1bn general insurance add-on market still provides a highly profitable opportunity for dealers. What is clear, is that dealers need to fully understand the policies they are selling and ensure they are working within the FCA regulations. If dealers partner with professional and reputable GAP providers who provide them with up-to-date compliance training and support, dealers have a great opportunity to boost their profits from GAP insurance sales.