Car dealers' GAP sales fall 16-23% following FCA compliance legislation

The Financial Conduct Authority has revealed that its GAP insurance sales legislation has led to an average fall in car dealers’ sales of the add-on insurance product of between 16 and 23%.

The FCA published the results of a report into the effects of new compliance legislation and claimed that the changes – designed to give consumers time to consider a GAP purchase and also increase competition to reduce costs – had resulted in £26 million to £28 million of “ongoing consumer benefits”.

Compliance changes imposed in September 2015 included a two-day cooling-off period following the sale of a vehicle to allow consumers to consider their potential purchase of GAP insurance and shop around for a better deal.

However, despite finding in its July 2014 survey of the sector that the estimated total consumer over-payment for add-on GAP insurance amounted to between £76 million and £121 million-a-year (out of an estimated market size of £152 million) its recent measures have failed to significantly reduce costs for consumers.

The FCA conceded: “Our intervention has had a stronger impact on sales than prices.”

While some dealers chose to no longer sell GAP insurance, the FCA’s new report showed where a dealer has applied additional focus on the sale of GAP, “they have benefited and the sales price has not changed significantly”.

The FCA revealed that the price of the average add-on GAP insurance policy was £375 during the 12 months before its legislation changes and £379 during the 12 months after – a rise of 1%.

In the 12 months to August 2017 that value had risen further, to £387 (up 3%).

According to the FCA consumers are more well informed about car dealers’ GAP products thanks to the mandatory levels of information that now have to be provided ahead of a sale, however.

Responding to the findings of the FCA’s report into the effects of its GAP insurance compliance measures, Sue Robinson, director of the National Franchised Dealers Association (NFDA), said that she was “pleased to see that FCA is satisfied with the impact of their previously introduced remedies on GAP insurance”.

She added: “The FCA has found that consumers are still buying GAP from dealers rather than going elsewhere such as online.

“However, the overall number of consumers buying GAP has dropped partly due to the waiting period which has resulted in consumers not buying rather than shopping around.

“It is encouraging to see that FCA also appears to have acknowledged the importance of selling add-on insurance at point of sale as this makes customers aware of the product and its importance.

“NFDA will read the Evaluation Paper thoroughly and communicate directly to our members any further, relevant updates.”

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