The Financial Conduct Authority has written to insurers warning that more action must be taken to ensure good consumer outcomes.
In letters sent to all insurance firms, the regulator reminded them of its expectations to make sure they’re checking their products are providing fair value to their customers.
The FCA also identified further evidence that some Guaranteed Asset Protection (GAP) products may be failing to provide fair value to customers.
This comes as the FCA publishes its latest insurance Value Measures Data (Jan-Dec 2022), which revealed potential concerns over the value of GAP products to customers.
GAP insurance is an add-on to motor insurance. It covers the difference between a vehicle’s purchase price and its current market value.
According to FCA data, for GAP insurance only 6% of the amount customers pay in premiums is paid out in claims. The FCA has 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 FCA has told firms manufacturing GAP insurance products they must take immediate action to prove customers are getting a fair deal, or it will intervene – giving firms a three-month ultimatum.
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.”