The FCA investigation into the Gap Insurance market has shown that there is a concern that competition in the market was not working as it should. This means that the majority of Gap Insurance products are sold by the supplying motor dealer, without consumers checking, or perhaps even being aware of alternatives in the independent marketplace.
If the FCA implement new rules to increase competition then this will drive more competitive premiums in the market.
The significant issue for the consumer is that Gap Insurance is not a well known form of financial protection. This means that the first time someone may be introduced to a Gap product by the dealer who is selling them the vehicle. This is often at the point of delivery, and this can leave the consumer little time to consider their options before driving off in their new vehicle.
If a consumer has the opportunity to scan the marketplace they will find that a typical Combined Return to Invoice product is sold at the motor dealer at £400 is available at around £100 from an independent provider. For those consumers who do compare the dealer product premiums and ask for an explanation for the price disparity from the dealer, they are often told something along the lines of ‘you get what you pay for’ or ‘the online providers simply do not pay out’. Of course such wholesale statements are simply not true, and often the ‘online’ providers products are handled by the very same claims team, and same insurance underwriters, as the products offered in the motor dealers.
It is clear with the close eye cast by the FCA on the Gap Insurance market, if they had any concerns that independent providers products were not performing as they should, then this could easily be drawn into the spotlight also. It simply has not been an issue.
The FCA have proposed a mechanism to ensure that consumers have the opportunity to consider their options with Gap Insurance. They have suggested an period of time (currently suggested at 4 days) between the motor dealer presenting their Gap product to the consumer, and the purchase of that policy by the the consumer from the motor dealer. The FCA have also proposed that motor dealers ensure consumers are aware that they can buy Gap Insurance from alternative sources. This seems sensible also, as many consumers we have spoken to were under the impression that the motor dealership is the only place that Gap Insurance can be purchased. The combination of these proposals will give consumers to compare and consider their options fully.
Motor dealers have voiced concerns with the new proposals, point out that consumers could be financially exposed if they drive away from the dealership without having the Gap Insurance in place. This does seem to be an argument based on the product being introduced at the point of delivery. As with many other products offered by the dealer, such as a finance arrangement or a Paint and Fabric protection product, these are introduced much earlier in the buying cycle. Presumably if the motor dealer did the same with Gap Insurance then this problem would be alleviated.
If the FCA do bring about new rules to improve competition, then what will the effect on the market be?
Well the key change may see a four fold (as has been suggested) shift in Gap sales away from motor dealers and in to the independent market. The main basis of this may be the much lower premium prices found away from the showrooms. The inevitable consequence of this will be the motor dealers will have to look at their product costs, and this can only see motor dealers looking to decrease premiums in order to compete.
If increased competition means better value then that can only be good for the consumer. The FCA will announce the new rules in the coming weeks, and these will take force in September.