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Behind the headlines: Mind the Gap – what is the FCA thinking?

  • Car Dealer editor in chief James Baggott delves behind today’s announcement that the FCA could be about to clamp down on the sale of Gap Insurance products

Time 5:50 pm, January 26, 2024

The news the FCA is ‘effectively banning’ the sale of Gap Insurance products has caused shockwaves around the industry today – but what’s really going on?

Sources within the insurance industry say the FCA has asked some Gap providers to ‘voluntarily’ remove Gap insurance from sale from February 7.

Other providers, it seems, have received different instructions. While they can carry on selling Gap insurance, they have been told they’ve not allowed to take on any more new dealers.

For fear of upsetting the regulator even further, none of them will go on the record.

The FCA is adamant it isn’t banning Gap Insurance. It sent us a comment to that effect and backed it up with a rather angry phone call.

But something is going on. The regulator is clearly unhappy with the way Gap Insurance is being sold and told the industry as much in no uncertain terms in September.

It said it wanted proof providers were offering customers ‘fair value’ and that if they couldn’t it would take ‘immediate action’. It gave insurers three months to comply.

Fast forward four months and car dealer sources, as well as those in the finance and insurance industries, tell us the FCA is stepping up its campaign.

Some moaned that asking them to voluntarily withdraw Gap products from sale was a ‘ban in all but name’. 

We asked for further clarification from the FCA as to what exactly it had asked of the Gap Insurance providers and whether it differed depending on the firm. 

It declined to comment further.

Several sources have said there’s a summit next week between providers and the FCA where cases will be made and the watchdog’s thoughts explained further. The FCA didn’t comment on that either.

What is clear is that something is afoot – and the FCA isn’t happy.

‘We’re disappointed with the market’s response to our warnings to improve the value of Gap Insurance for customers,’ it told Car Dealer earlier today.

‘We have told firms to take immediate action to show how customers are getting a fair deal or we will intervene.’

The impact on car dealers and the industry could be huge. Gap Insurance is a useful revenue stream for the industry and actually a useful product for customers caught out by a total loss of their vehicle and a shortfall in their insurance payout.

The real problem, it seems, is the commissions paid to car dealers for the sales. While some in the industry say the additional hassle of selling the products is worthy of the high commissions, others ask if the sometimes +50% commissions can be justified.

If the rumours are to be believed, the changes are coming into force on February 7. We’ve had that date mentioned to us by multiple sources – but when the FCA decides to give more clarity on its position remains to be seen.

James Baggott's avatar

James is the founder and editor-in-chief of Car Dealer Magazine, and CEO of parent company Baize Group. James has been a motoring journalist for more than 20 years writing about cars and the car industry.

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