At GapInsuranceTV we have always tried to balance our views on Gap Insurance, the need for it and the way in which it is sold in the UK. We are able to do this as we have contributors from independent Gap Insurance providers, as well as people currently involved in the retail motor industry. There are two sides to every story.
Gap Insurance in the sights of the FCA in 2014
The main topic of conversation in 2014 has been the current FCA investigation into the sales of general insurance products, with Gap Insurance firmly in the spotlight. It is clear from the initial findings of the FCA that they have concerns that the current process employed in motor dealers for the sale of Gap Insurance may be preventing competition in the market. This in turn, may be preventing consumers from getting the very best value for money.
Currently, the motor dealer is deemed to have a ‘point of sale’ advantage over independent brands. Consumer research undertaken by the FCA has shown that many consumers are not aware that they can buy Gap Insurance away from the motor dealers. More alarmingly many also said they did not remember buying what can be an expensive product when bought from the dealer, nor could many remember what they paid for it even just a few weeks later.
The motor industry has had their say too, and the FCA have allowed a consultation period to take all views on the subject. However, it does appear that the FCA are determined that consumers get a much better deal for general insurance products, such as Gap Insurance.
In a recent article, published on AM Online highlighted some dealers concerns with a proposed ‘deferred opt in’ period for point of sale dealer Gap products. This may mean that a motor dealer has to confirm, a number of days after initially offering Gap Insurance to the consumer, whether they still wanted the product. Such a period would enable the consumer to assess their options clearly in the open market, and choose the product that they feel best meets their needs.
The report suggested that some motor dealers may leave the market as a result of this deferred opt in proposal. We would have to question why?
If a motor dealer is offering consumers the best product at the best premium, why would they be concerned about consumers comparing options in the open market? If they do offer the best proposition then the consumer will choose them anyway, would they not?
Of course the clear inference is that motor dealers are afraid that by allowing consumers to access the open market, that it will become clear that better value, and more comprehensive products can be found at specialist providers. The best news of all, is that the premium savings can be huge also.
As the FCA fine tune their proposals in the coming months, it can only be hoped that they stick to their principals on this issue. In the current market the consumer will generally find the best products from independent brands. The savings in premium costs can be 70 or 80% also, as some motor dealers still stubbornly overcharge for Gap Insurance products. This delivers poor value for consumers, and the FCA seem determined this will stop.
Why motor dealer Gap products are often not as good
Other issues with motor dealer products can mean that they often do not provide the features that offer better value to consumers. For example:
The ability to defer your Gap policy start date – where a brand new vehicle is purchased, often a motor insurer will provide a brand new vehicle as a replacement in the first twelve months, following their declaration of a ‘total loss’. Having Gap Insurance covering you for the same period may be simply paying for Gap Insurance you do not need.
Some of the better products in the open market will allow you to defer the start date of your cover until the end of your replacement cover with your motor insurer. This means, subject to you being happy with your motor insurers replacement terms, you get the very best value from your Gap by deferring and only taking the cover you need.
The ability to transfer your policy – so many consumers assume that a Gap Insurance policy can simply be transferred from one vehicle to the next, should you change the vehicle during the policy term. You can with your motor insurance, so you can with your Gap, right? Well with many motor dealer products this is not permitted, nor can it be passed to the new owner of the car. The argument that the remaining policy value can be refunded may be given, however this refund can be reduced by a hefty cancellation fee deduction.
Many of the online providers will allow you to transfer the balance of the current policy terms, or the monetary value of the remaining term off a new policy, onto your new vehicle. Some of the better policies will offer you the choice of both options, and it is rare to see any administration fee charged under these circumstances.
The option for longer periods of cover – with many dealers offering 4 or 5 year finance packages, then you may wonder why they only offer 3 year Return to Invoice Gap cover. It makes little sense for a 5 year commitment not to at least have the consideration for 5 year cover, yet motor dealers still traditionally only offer the short periods for Gap cover, that do not match the finance agreement liability periods.
Again we have seen the more specialist online brands offer 4 and 5 year cover for a period of time now, and often at lower premiums than the dealers offer for three. Of course if the vehicle is changed within a 5 year period, you will have the transfer options detailed above to ensure you get the maximum value.
Poor choice of products – motor dealers sell cars first, then insurance products. They may be completely authorised by the FCA to sell insurance, but this does not mean they offer a great choice that can meet the consumer needs. Your motor dealer will normally offer a stock 3 year Return to Invoice cover, and this may be fine. However where you have a heavy discounted vehicle, the invoice price back may be completely inadequate if you are looking to replace the vehicle in the future. A Combined Vehicle Replacement product would be more appropriate in these circumstances, yet the dealers may not offer this even on a vehicle that will be more to replace in the future.
What can motor dealers do if the ‘deferred opt in period’ comes into force for Gap Insurance?
Well it seems clear that if motor dealers are required to allow consumers to compare products in the market then they may want to address their current offerings. The only way they could compete with the leading online brands is to increase policy features and choice, and of course lower their premiums.
If this does happen then this can only benefit the consumer. The rules on Gap Insurance sales look set to be changed.