The long awaited Guaranteed Asset Protection (GAP) Insurance: competition remedy, has been issued by the FCA in June 2015.
So what does this mean for the distribution of GAP Insurance and the viability of the product for the consumer and businesses?
The main points to note are:-
Firms distributing GAP insurance in connection with the sale of a motor vehicle (add-on GAP) will be required to:
- Provide customers with prescribed information to help them shop around and be more engaged when making decisions about purchasing the product
- Introduce a deferral period, which means GAP insurance cannot be introduced and sold on the same day.
The FCA believe that from these changes they "expect to see better customer outcomes from more informed purchasing decisions and improved competition between add-on and standalone distribution channels as a result of these measures"
What is Prescribed Information?
ICOBS 6A.1.4 R
- Before a GAP Contract is concluded a firm must give the customer the following information:
- The total premium of the GAP contract, separate from any other prices
- The significant features and benefits, significant and unusual exclusions or limitations, and cross-references to the relevant policy document provisions
- Whether or not the GAP contract is sold in connection with vehicle finance, that GAP contracts are sold by other distributors
- The duration of the policy
- Whether the GAP contract is optional or compulsory
- When the GAP contract can be concluded by the firm, as described in ICOBS 6A.1.6R and ICOBS 6A.1.7R; and
- The date the information in (a) to (f) is provided to the customer.
- This information must be communicated in a clear, accurate manner, in writing or another durable medium, and made available and accessible to the customer.
- This information must be drawn to the customers' attention and must be clearly identifiable as key information that the customer should read.
What does this mean for insurance brokers?
GAP Insurance distributed by an insurance broker is a standalone policy sale. This means insurance brokers are not subject to the new ICOB rules that distributors of motor vehicles have to comply with.
There is now greater opportunity for insurance brokers to make their customers aware of the following:
- Motor dealers, manufacturers, finance houses and leasing brokers have to comply with new rules in respect of the distribution of GAP Insurance as it is an 'Add-on' sale
- The deferred period of 4 days as to when the GAP insurance policy sale can be concluded by the business supplying the motor vehicle
- Insurance brokers can offer GAP insurance to new and more importantly used vehicles instantly
- GAP Insurance purchased via an insurance broker is charged at a lower rate of Insurance Premium Tax (6%) as opposed to the supplier or financer of the motor vehicle (20%)
- GAP Insurance purchased via an insurance broker is likely to be between 35 - 50% cheaper than the dealer equivalent product
- GAP Insurance purchased via an insurance broker will be tailored to the customers' specific needs and duration they intend to keep their vehicle.
For further information on GAP Insurance and the solutions available to your business please call 0330 111 3093 and ask for Sharon Gould.