Car dealerships are charging up to 278% more than independent insurers for products such as GAP insurance and cover for scratches or tyre damage.
This is according to research from Which? that attributes the exorbitant premiums to the high commission rates that dealers take on add-on products.
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The consumer watchdog assessed the cost of buying Guaranteed Asset Protection (GAP) insurance from four different car dealerships, and compared the costs of buying the same cover from an insurer directly. The results showed that GAP insurance bought from a car dealership were up to £367 (278%) more expensive than those bought from an insurer directly.
Which? found the cost of purchasing GAP insurance for a Ford Fiesta from a dealership was £499, but only £132 on average when purchased directly from an insurer. The smallest disparity for GAP insurance in the study was 102% – for a Honda CR-V SUV that cost £415 from a dealership, but £205 on average from an insurer directly.
Cosmetic and dent insurance was also found to be almost 60% cheaper to buy from an insurer than directly from a car dealership. Alloy wheel and tyre insurance was up to 26% cheaper when bought from an insurer than a dealership.
“We’re really concerned that car dealers are continuing to pocket huge commission fees from selling insurance products at rip-off prices, despite recent scrutiny from the financial regulator,” said Jenny Ross, editor of Which? Money.
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By GlobalDataCar dealerships came under scrutiny from the Financial Conduct Authority (FCA) earlier this year, in a report which highlighted numerous examples of dealerships receiving potentially excessive levels of commission.
The FCA report found the average level of commission (after Insurance Premium Tax) taken by car dealerships when selling these policies was 71%. It also found that car dealerships selling scratch and dent insurance were receiving an average commission of 54%.
The FCA also found examples of GAP products being sold to ineligible customers who did not need the cover, prompting concerns about potential mis-selling.
Ross continued: “The FCA needs to keep a close eye on these practices and be ready to step in with strong action if consumers face mis-selling or unreasonable charges for these products.”
