Multiple UK insurance companies have agreed to stop selling policies that cover declining car values after the Financial Conduct Authority raised concerns about customer fairness.
Insurers that account for 80% of the guaranteed asset protection market have agreed to halt sales, the FCA said in a statement Friday. GAP insurance is typically sold alongside car finance and covers the difference between the car’s purchase price or outstanding finance and its current market value, in the event that the vehicle is written off before the finance is repaid.
“GAP insurance can provide a useful service to customers, but in its current form it does not offer fair value and we want to see improvements,” Sheldon Mills, executive director of consumers and competition, said.
Only 6% of the amount customers spend on premiums for the insurance is paid out in claims, according to FCA data. The regulator said it has seen examples of some firms paying out 70% of the value of insurance premiums in commission.
The firms that have agreed to stop selling are Fortegra Europe Insurance Company Ltd., Arch Managing Agency Ltd., Arch Insurance (UK) Ltd., Motors Insurance Company Ltd., Red Sands Insurance Company (Europe) Ltd. and Acasta European Insurance Company Ltd., according to the FCA register.
The regulator previously scrutinized this market in 2014 and again in 2018. It wrote to all providers in September asking them to take immediate action but was “not satisfied” with the result, according to the statement.
It’s the latest part of the UK motor market to come under scrutiny from regulators concerned about unfair practices. The FCA announced an investigation into motor finance last month, in a move that analysts say could leave banks with a bill of as much as £10 billion ($12.6 billion).
(Updates to add names of insurers in fifth paragraph.)
Top photo: ELLESMERE PORT, ENGLAND – SEPTEMBER 21: In this aerial view, new and secondhand cars are seen for sale on a dealership forecourt on September 21, 2023 in Ellesmere Port, England. The Prime Minister has announced the postponement of several “green” targets, including a delay of the ban on selling new petrol and diesel cars in the UK. Previously, the ban was to come into effect in 2030, and now will be 2035. (Photo by Christopher Furlong/Getty Images).
Was this article valuable?
Here are more articles you may enjoy.