Drivers could potentially save £70 million on car insurance this year due to new regulations introduced by the Financial Conduct Authority (FCA). These changes, part of the Consumer Duty legislation, aim to ensure that companies prioritise customers' needs over profit-driven incentives.
The Consumer Duty, which came into effect last year, has increased oversight on car finance companies and insurers. One significant area of focus has been the Guaranteed Asset Protection (GAP) insurance market, which has faced scrutiny for unfair practices. GAP insurance is designed to cover the difference between an insurance payout and the amount needed to replace a vehicle that has been written off or stolen. However, many insurers were found to have been misleading customers and charging excessively high commissions.
The FCA discovered that only 6% of the premiums collected for GAP insurance were paid out in claims, with some firms allocating as much as 70% of premiums to commission. In response, the FCA intervened last September, demanding that GAP insurance providers take immediate steps to ensure customers were receiving fair value.
After an initial review, the FCA found the industry's response insufficient and temporarily halted the sale of GAP products on March 31. Following further investigation, around 80% of providers agreed to pause sales. By late May, these providers were permitted to resume sales, following significant changes to improve the value of GAP insurance for consumers.
Sheldon Mills, the FCA’s executive director of consumers and competition, stated that the FCA's intervention is expected to lead to substantial improvements in the GAP insurance market, potentially saving customers around £70 million. He emphasised that while profits are necessary for businesses, they must not come at the cost of fair value for consumers. Mills also highlighted that prices must be reasonable relative to the benefits provided.
