’This is an early signal of the work we’ll be doing under the Consumer Duty,’ says director of insurance

The FCA has given insurance firms an ultimatum after finding guaranteed asset protection (Gap) products may be failing to provide fair value.

Gap insurance is an add-on to motor insurance and covers the difference between a vehicle’s purchase price and its current market value.

However, in a statement released yesterday (20 September 2023), the FCA said its data showed that there had been cases where only 6% of the amount customers paid in premiums was paid out in claims.

And it had also seen examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as motor dealerships.

As a result, firms producing this type of add-on insurance have been given a three-month ultimatum by the regulator – take immediate action, or it will intervene.

Consumer Duty

This came after new regulations introduced by the FCA mean a service driven market centred around fair value is more important than ever.

For example, its Consumer Duty regulation, which was introduced earlier this year (31 July 2023), sets out updated regulations that firms must follow.

Essentially, it requires insurance firms to review their products and services against a new standard of fairness.

To ensure insurance firms were complying with this, the FCA also revealed yesterday that it had written to all companies within the industry, warning them that more action must be taken to ensure good customer outcomes.

Matt Brewis, director of insurance at the FCA, said: ”This is an early signal of the work we’ll be doing under the Consumer Duty.

“Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided.

“If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.”