Motorists should mind the GAP
Motorists caught up in the excitement of driving a new car off the forecourt should beware rip-off insurance products flogged by salesmen at the point of purchase.
Gap (guaranteed asset protection) insurance is a product designed to pay the difference between any insurance payout you receive and how much it would cost to buy exactly the same model of the car again.
For example, a car you buy for £15,000 today might be worth only £9,000 in three years’ time, so you would get back £9,000 if it was written off following an accident. A Gap-insurance policy would make up the difference and pay whatever was needed to buy the same car again.
But critics have long had suspicions that policies sold by motor dealers are not competitive, and an investigation into the practice by regulator the Financial Conduct Authority has proposed introducing a cooling-off period between buying a car and signing up for Gap insurance.
The FCA found that nearly 60% of people who bought Gap insurance from a motor dealer had not thought about it until the day they bought it, and almost half were not aware they could have bought it elsewhere. Furthermore, people who bought it on the garage forecourt had, on average, a worse understanding of the product than those who bought it elsewhere.
Unsurprisingly, the FCA’s findings were welcomed by independent providers of Gap insurance.
David Burns, of Gapinsurance.co.uk, said: “We’ve seen press releases being circulated by motor dealers and their suppliers in which it’s implied that the current situation is OK, because the policies include a 30-day cooling off period, within which customers can change their minds, cancel and get refunds.
“We don’t think that’s OK at all. Putting aside the fact that the cooling-off period doesn’t justify the mis-selling in the first place, most people who have tried to cancel a motor dealer-sourced Gap insurance policy will agree that it’s far from an easy process.”
He added: “We speak to customers regularly who try to cancel their dealer-sourced Gap insurance policies within the cooling-off period. Threats to increase the cost of the car, cancellation requests being ignored, a reluctance to revise finance agreements and a generally stressful experience are all par for the course.”
Paul Harrison, head of motor finance at the Finance & Leasing Association, said: “We are pleased that the FCA has listened to a number of our specific concerns – including how the proposed ‘deferred opt-in’ for Gap insurance would work at the point-of-sale.”
The FCA will publish its final consultation paper on Gap insurance later this year.