City regulator warns insurance firms to make sure they are offering fair value
The FCA has identified evidence that some guaranteed asset protection products, an add-on to motor cover, may be failing to provide fair value.
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.The City regulator has given firms producing a type of add-on insurance to motor cover an ultimatum to demonstrate they are providing fair value.
Firms that are unable to prove they are providing fair value to their customers should expect further action, the Financial Conduct Authority (FCA) said.
The FCA said it had identified evidence that some guaranteed asset protection (GAP) products may be failing to provide fair value to customers.
GAP insurance is an add-on to motor insurance, covering the difference between a vehicle’s purchase price and its current market value.
It may be needed when there is a financial shortfall, if for example a customer’s vehicle is written off or stolen, or the motor insurance payout does not pay back the vehicle’s original value at purchase.
According to FCA data, for GAP insurance, only 6% of the amount customers pay in premiums is paid out in claims.
The FCA said it has 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.
The regulator said it has told firms manufacturing GAP insurance products that they must take immediate action to prove customers are getting a fair deal, or it will intervene – giving firms a three-month ultimatum.
It has also sent letters to all insurance firms, reminding them of its expectations to make sure they are checking their products are providing fair value to their customers.
A new, wide-ranging consumer duty was introduced on July 31, requiring financial firms to put consumers at the heart of what they do, from designing products to dealing with customers.
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.”
Rocio Concha, Which? director of policy and advocacy, said: “At a time when many insurance customers are paying sky high premiums amid the worst cost-of-living crisis in decades, these figures clearly demonstrate that parts of the market aren’t providing value for money for consumers.
“It is very concerning to see that payouts for guaranteed asset protection are sitting at 6% of what these firms take in premiums – despite the regulator raising concerns about value for money almost a decade ago…
“The FCA has left firms in no doubt over their obligations to their customers, and failure to meet deadlines set for improvements must result in immediate action by the regulator.”
A spokesperson for the Association of British Insurers (ABI) said: “Our members fully understand the importance of providing fair value to customers and work hard to deliver it.
“We’ll discuss the FCA’s concerns with them to understand where any further action could be taken.”