The Financial Conduct Authority (FCA) has released a set of proposals designed to promote competition in the £160m UK guaranteed asset protection (GAP) insurance market.
The proposals follow a damning report from the regulator released in August, which found the majority of customers were unaware of how much they even paid for the insurance.
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Deferral Period
In the proposals, the FCA said it found the main harm to competition in the market arose from the point-of-sale advantage held by distributors of motor vehicles. In order to combat this, the regulator intends to introduce a deferred opt-in period, or a pause in the add-on GAP insurance sales process.
Under these plans a distributor would be able to introduce the product to the customer and provide the necessary information, but will not be allowed to conclude the sale until after the deferral period has ended.
The FCA’s point of deferral is once the key information about add-on GAP insurance has been provided to the customer, so that the customer is in a position to consider the purchase and compare against other products.
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By GlobalDataOnce the deferral period starts, the FCA has proposed that it lasts for four days, if the point of sales is concluded at the distributor’s initiative. However, where a customer wishes to continue the purchase, the deferral period will be reduced to a single day.
Additional information provision
The current relevant FCA rule for the sale of GAP insurance states: "A firm must take reasonable steps to ensure a customer is given appropriate information about a policy in good time and in a comprehensible form so that the customer can make an informed decision about the arrangements proposed."
Under the new proposals, a firm would need to provide customers:
– The premium of the add-on GAP insurance policy, separately from other prices
– The main benefits, exclusions and limitations of the add-on GAP insurance policy, including the duration of the policy
– That GAP insurance can be purchased from other sources
– Whether the GAP insurance policy is optional
– How the deferred opt-in works, including the date on which the prescribed information was provided so that it is clear to the customer when the ‘clock’ has started.
– Where add-on GAP insurance is being offered alongside vehicle financing, it should be clear that GAP insurance can be purchased elsewhere
The FCA intends to stipulate the general sales information that is normally provided during the process of buying a GAP insurance product, and should be provided in writing.
The FCA has requested any feedback on the proposals be given by 13 March 2015. The regulator intends to publish the final rules in a policy statement by June 2015 with a view to the rules coming into force on 1 September 2015.
