Motor insurers selling GAP policies will find the recent FCA study and publication particularly significant. In a letter to insurers, the FCA warned, more action was needed to guarantee positive consumer outcomes, especially considering new Consumer Duty.

A reminder was sent by the FCA to all insurance companies outlining its expectations to ensure products offer fair value to their customers as they found evidence that some GAP products might be failing in this area.

The FCA released its most recent insurance Value Measures Data (Jan-Dec 2022), which has brought to light potential concerns regarding the value of GAP products for customers. Based on this data, it is evident that only 6% of premiums paid by customers for GAP insurance are actually paid out in claims. Furthermore, the FCA has identified instances where certain firms have allocated as much as 70% of the insurance premiums’ value in commission to parties within the distribution chain, including motor dealerships.

GAP insurance providers have been instructed by the FCA to demonstrate that their customers are receiving equitable treatment. Failure to do so within three months will result in intervention by the regulatory body.

Matt Brewis, Director of Insurance, 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.’

In 2021, insurers were required to guarantee fair value in their products, necessitating the submission of periodic Value Measures Data to the FCA. The most recent publication of this data is now available. Please see the latest insurance Value Measures Data.

Over the past year, the FCA has implemented supervisory measures against companies that have demonstrated the following:

The FCA confirmed in their Dear CEO, Insurance Market Priorities 2023-2025 that firms should enhance efforts in effectively showcasing the delivery of fair value, encompassing the justification of prices and commission levels. They also confirmed they will intervene to ensure their objectives are achieved in cases where firms do not meet expectations.