Are YOU paying for Gap car insurance you don’t need? FCA to probe whether deals are worth it

Motorists with Gap insurance claim just once every 300 years – and now the financial regulator is stepping in to ensure consumers are not being ripped off.

Not only is the Financial Conduct Authority (FCA) worried that barely any Gap policies are claimed on, it is now asking serious questions about commissions of up to 70 per cent that bump up premiums – without any apparent reason. 

GAP stands for guaranteed asset protection, and is a sort of insurance that covers your car’s loss in value if it is written off or stolen, as vehicles depreciate so quickly.

It is normally sold as a standalone policy or as an add-on to other sorts of financial deals, like car insurance. 

Wheeler dealer: Many Gap insurance policies are sold by car dealerships alongside vehicles

There were 567,895 add-on Gap policies and 1.8million standalone deals sold in 2022 – a total of 2.4million, meaning one in every 16 drivers has such a product. 

The average Gap premium is around £126 a year for standalone cover, and £131 as an add-on. 

But there is a problem with Gap insurance – most motorists don’t ever claim on it.

New figures from the FCA show that only 0.34 per cent of add-on Gap is claimed on every year – meaning the typical driver claims once every 294 years. 

For standalone Gap, 1.8 per cent of people taking out the policy make a claim every year, meaning the average customer claims every 55 years on average. 

The FCA says Gap insurers pay the least out in claims of any area of insurance as a proportion of premiums they charge. 

Standalone Gap policies pay out just 6.87 per cent of premiums every year as claims, while add-on Gap deals pay out 4.37 per cent. 

For comparison, motor insurers pay out 64.51 per cent of premiums as claims and motorbike insurers 60.67 per cent.

Now, as This is Money revealed back in January, the FCA is turning its attention to low-value insurance deals. 

Piggybacking: Most Gap  insurance is sold separately, but around one in three deals is bought as an add-on to other insurance policies

The FCA has given Gap insurers one month to explain how their deals are right for drivers.

FCA director of insurance Matt Brewis said: ‘Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided.

‘If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.’

This is Money understands that the short one-month timeframe reflects how worried the FCA is about the state of Gap insurance. 

Some of the largest insurers issuing Gap policies are AmTrust Europe and Ageas.

The regulator is also concerned about the level of commission charged on Gap insurance – for example, insurers routinely pay car dealerships to sell Gap to customers, then give them a fee. 

The FCA has examples of firms paying out up to 70 per cent of the value of insurance premiums in commission to firms such as motor dealerships. 

A spokesperson for the Association of British Insurers trade body said: ‘Our members fully understand the importance of providing fair value to customers and work hard to deliver it. 

‘We’ll discuss the FCA’s concerns with them to understand where any further action could be taken.’ 

Why don’t drivers claim on Gap insurance? 

Some may not be aware they even have the policy. 

When this insurance is sold, especially as an add-on to a bigger main policy, customers frequently do not realise – or forget – that they have the cover at all. 

When Gap insurance is claimed on it almost always pays out, suggesting many customers are unaware they are covered in the first place.

In fact, standalone Gap insurance has the highest payout rate of any insurance, at 99.3 per cent, with an average claim of £529.86 – when customers actually make a claim.

That drops to 95.59 per cent for add-on Gap, with a typical claim being £2,201. 

How do I know if I have Gap insurance? 

You should check the terms of your car insurance deal, as well as any car finance documents you have. 

Gap insurance is not the only insurance deal on the FCA’s watchlist. 

The regulator said: ‘Whilst this action is on Gap insurance, many of the concerns we see are potentially related to wider issues and so firms’ boards should take note of this action and make sure they are meeting their product governance requirements across all retail products.’ 

This post first appeared on Dailymail.co.uk