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In the Summer the Financial Conduct Authority (FCA) published their market study into the add-on insurance market. GAP insurance was one of the products the study focused on.

Unfortunately, the FCA believed from the investigation that the GAP market was not operating well and that competition needed to be improved. Of particular concern was their perception that dealers had a competitive advantage at point of sale in the dealership stopping consumers from shopping around. As part of their report the FCA suggested market remedies including a deferred opt-in, which would prevent dealers selling GAP when a vehicle is ordered.

The NFDA have been concerned about the direction of the FCA market study for some time. We have had a number of meetings with the FCA over the past few months to discuss our position and to give the FCA information on the GAP market. We have been particularly concerned about the lack of investigation by the FCA into the market and the conclusion they have drawn from incomplete market research.

Current Position

The NFDA have had a number of meetings with the FCA post the publishing of the market study. The meetings have been useful and have shown up the gaps in the FCA’s knowledge of the dealer GAP market. Following these meetings we have furnished the FCA with GAP and general vehicle market data and outlined the sales process for GAP in the dealership.

Our position with FCA on GAP is that we do not want a deferred opt-in. It will not work and is likely to ‘kill’ the GAP market rather than reform it. However, if the FCA insist on going ahead with it we would want the shortest period possible and it should end before the car is delivered.

We have highlighted a number of issues with the deferred opt-in which include:

  • Most GAP is sold on vehicles that are financed. It would be costly and difficult to add GAP onto the finance agreement after a customer has been accepted for finance.
  • Dealers are likely to stop GAP if there is a delay in selling until after the car is delivered. Nearly all GAP is currently sold as part of the showroom sales process. GAP sold after delivery would have to happen remotely using a call centre. All this adds cost and historically call centre sales have poor penetration rates and are disliked by customers.
  • There is little appetite by direct insurers to come into a market they see as the preserve of the dealers. It would also involve substantial set up and marketing costs.

The NFDA believe there are better solutions to increase market competition which include:

  • Ensuring customers have all the information about GAP including price early in the sales process. Giving the customer time to evaluate what the dealer is offering and to look at non-dealer options.
  • Formalise the cancellation policy, currently ABI lenders give a 30 day cancellation period and pro-rate refunds for GAP. This could be made a FCA requirement for all policies.
  • Ensuring customers have full cancellation information and know how to cancel if required. A similar process to the one used with ‘white and brown’ good warranties where the insurer contacts the customer could work.

What Next ?

The FCA are currently holding stakeholder workshops to gather data and discuss their proposals. Following these the FCA will develop a consultation to be published either late 2014 or early 2015. The consultation will last 12 weeks and the results are likely to be published some time in the Spring. Implementation of any proposals is likely to be towards the end of Q2 2015 or more likely Q3 2015.

In Summary

The FCA appear to have got somewhat weighed down during their market study highlighted by the slippage in the timetable for implementing remedies. Originally the FCA were talking of remedies in place in late 2014 rather than the now more likely mid-2015. It would appear that the FCA’s remedy of a deferred opt-in has been heavily challenged by dealers and insurers, not least for the lack of consideration of wider implications to the market and the additional costs it would bring to business and consumers. One of the most critical issues missed by the FCA is the risk to consumers of not being insured by GAP if it becomes harder to source or there is a delay to insuring a vehicle to post delivery.

The NFDA will continue to lobby for the best outcome for dealers and their customers. We believe the deferred opt-in will not work and certainly will not deliver the goals of the FCA for the GAP market.

Posted by Sue Robinson on 28/11/2014