FCA rules for the sale of Guaranteed Asset Protection (GAP) insurance

In 2014 the FCA published their final findings report following a thematic review of the General Insurance Add-ons market. The FCA were concerned about the lack of competition in the GAP insurance market which their research suggested:

  • led to inflated prices at the point of sale;
  • consumers were not always well informed about the GAP policies they were purchasing;
  • consumers were not often getting value for money.

On 1st September 2015 the FCA introduced new rules (which form chapter 6 under ICOBS) aimed at addressing these concerns by installing a process outlining how GAP insurance had to be sold. The rules fall under two distinct remedies:

1) Prescribed information

Before a GAP contract is concluded, a firm must draw to the customer's attention the following information:

  • the total premium of the GAP contract, separate from any other prices;
  • the significant benefits and unusual exclusions or limitations, and cross-reference to the relevant policy document provisions;
  • the fact that GAP contracts are sold by other distributors (whether or not the GAP contract is sold in connection with vehicle finance);
  • the duration of the policy;
  • whether the GAP contract is optional or compulsory;
  • when the GAP contract can be concluded by the firm;
  • the date the above information has been provided to the customer.

2) Deferred opt-in

The new rules also state that a GAP contract cannot be concluded by a firm with a customer until at least 2 clear days have passed since the prescribed information has been given to the customer, unless the customer initiates contact earlier (see below). An example of the timings are provided below:

  • Day One: Prescribed information is provided to the customer
  • Day Two: First clear day
  • Day Three: Second clear day
  • Day Four: GAP contract can be concluded with the customer