The FCA first looked at the GAP insurance market last year, when a study concluded that competition for add-ons is not effective because the point of sale advantage meant choice and competition for consumers was restricted.
As a result, the FCA argued, consumers were more likely to buy inappropriate or unsuitable products, or receive poor value for money. This translates into overpayment, which it estimated as at least £108m a year.
Now, as part of its commitment to Treating Customers Fairly (TCF), the FCA is considering remedies to address the issue, which include banning opt-out selling and improving product information provision in relation to general insurance add-ons.
The consultation CP15/13, which closes on 25 June, indicates the FCA proposes to change the Conduct of Business Sourcebook (COBS) to say that "A firm must not enter into an agreement with a client under which a charge is, or may become, payable for an optional additional product unless the client has actively elected to obtain that specific product."
John Chadwick, director at Acquis Insurance Management Limited, said this would “definitely shake up the industry”.
“The FCA’s concern is that a buyer makes a financial agreement over a vehicle and is then, at the point of sale, asked to decide on GAP insurance. There’s a feeling that isn’t the right time, and the FCA wants to make it clearer that people are opting in,” Chadwick said.
That could mean switching to an approach whereby consumers are contacted after the sale and asked about insurance, which Chadwick predicts is likely to result in lower acceptance rates.
Chadwick also cautions that the FCA’s consultation talks about insurance products which consumers are not “contractually obliged” to purchase, which could include other options such as breakdown cover.
“Suppliers are going to need very good IT systems so they can record buyer’s details, contact the customer after the sale of the finance product to make the offer for products like GAP insurance and, above all, so they can show that the FCA’s desire to move the point of sale for the GAP insurance away from the pressure point of the sale of the finance is being met,” Chadwick stated.