Consumer empowerment drives GAP product launch, as FCA issues warning to those failing to ensure fair value for policyholders
In September, the Financial Conduct Authority (FCA) penned a letter to all insurance companies beginning ‘Dear CEO’ – and ending with a warning.
Matt Brewis, FCA Director of Insurance wrote “Too often we find significant failings […] in the last year we have taken supervisory action against firms where we have seen […] the continued sale of products not providing fair value [and] paying away substantial amounts of commission to third parties where it was not clear how those commission levels had been assessed as being fair value.
“We are concerned that not enough action is being taken to ensure good outcomes for customers.”
Under Consumer Duty regulations, dealers have a responsibility to know and understand the full distribution chain – including the commission value – to ensure fair value outcomes for the customer. Since July, the implication is clear: where the number and cost of parties cannot be justified, dealers should seek a direct relationship with the product manufacturer – in this case, the insurer.
The FCA has instructed insurers manufacturing GAP products to take immediate action to evidence that consumers are receiving fair value within the next three months.
“We expect firms’ Boards to ensure concrete, proactive action is taken throughout the firm in line with our rules and expectations and not to treat them as a compliance exercise or wait for us to force action,” Brewis stated.
“This is an early signal of the work we’ll be doing under the Consumer Duty […] If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.”
As far as we can see, the FCA review and recent communication with insurers is likely to drive two broad outcomes:
Our approach at QBE Automotion is to provide insurance options that place good consumer outcomes at the heart of our product offering – and which are an attractive choice for those dealers looking to achieve the same.
QBE Automotion has recently launched a selection of four new GAP products for the UK market, all of which are underpinned by our commitment to offer fair value to consumers. These GAP products, (which we call Automotion Asset Protection Insurance) combine Financial Shortfall Asset Protection and Return to Invoice cover, to give best value to policyholders.
Combining these two types of asset protection insurance options into one product allows a much greater degree of flexibility to tailor the cover to meet the consumer’s needs. All four of QBE’s Automotion asset protection insurance products will cover customers however they choose to purchase their vehicle, and whether they claim when that vehicle is two weeks or two years old – ensuring fair value for policyholders.
As dealers come alive to the FCA’s requirements of good consumer outcomes for GAP insurance distribution, QBE Automotion is a direct insurance partner ready and waiting to help selling distributors minimise indirect costs and provide assurance to customers that they’re covered for all eventualities.
GAP insurance is Guaranteed Asset Protection. The same product can also be known as Shortfall Insurance, Return to Invoice, Vehicle Replacement Insurance, Finance Gap, Agreed Value – or simply GAP insurance.
GAP is a depreciation insurance product for motor vehicles, new or used. Consumers protect the difference between the insurance settlement at the point of total loss (when a car is written off) and a specified amount. A motor insurance settlement is unlikely to be the cost of the vehicle as new; it is based on the second-hand value of the car at the time of the accident.
If the car is written off while still on finance or contract hire, owners are still expected to cover any outstanding payments or settle the hire agreement. Although motor insurance offers some coverage, the settlement is rarely enough to cover any outstanding finance payments.
This is where GAP comes in. Consumers can protect themselves with insurance that means whatever happens, they can settle any outstanding finance and/or have a sum to cover a suitable replacement.