The FCA has issued Policy Statement 15/13 which sets out feedback and final rules to last year’s consultation on add-on Guaranteed Asset Protection (GAP) insurance. The final rules aim to remedy significant concerns the FCA has about competition in the GAP insurance market, limiting the point-of-sale advantage of add-on distributors. The final rules require firms that distribute GAP insurance in connection with motor vehicle sales to:
- Provide customers with prescribed information in order 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 rules will affect how distributors engage with both commercial customers and retail consumers. Standalone GAP insurance is not within the scope of the new rules as the FCA found that purchasers of standalone GAP have a better understanding of the product.
The FCA has not made significant changes to the remedies consulted on and the following rules apply from September 1, 2015:
- Firms must provide customers with a non-exhaustive list of prescribed information before the conclusion of a GAP insurance contract including: the total premium, separate from any other prices; significant features and benefits and unusual exclusions or limitations; the duration of the policy; and whether the policy is optional or compulsory.
- Firms must continue to comply with the product information rules in ICOBS 6.
- GAP insurance sold as part of buying a vehicle cannot be introduced by the distributor and sold on the same day. The deferral period will start when the customer is given the prescribed information and end four days after that information is provided.
- The customer can initiate the sale of GAP insurance the day after the deferral period starts provided they confirm that they are aware of the longer deferral period but want to proceed with the sale anyway.
- Firms should have regard to the information needs of customers when selling GAP insurance. If, for example, a long time has passed between providing the prescribed information and concluding the sale, firms should consider whether it is appropriate to provide the information again.
The requirement to provide the prescribed information can be outsourced to third parties, subject to FCA regulatory rules. The rules must also be complied with if add-on GAP insurance is bundled with other products in an unbreakable package.
Most respondents suggested extending the implementation date. This was rejected and the rules will enter into force on September 1, 2015. Distributors of add-on GAP insurance, therefore, have a relatively short timeframe to implement changes to their systems and processes which is likely to include IT changes, staff training and documentation review.
View PS15/13: GAP insurance: competition remedy, 10 June 2015