New GAP Insurance Rules -

The FCA published new rules in June governing the sale of addon Guaranteed Asset Protection (GAP) insurance. The rules came into force on 1 September 2015 and apply to commercial customers as well as retail customers. GAP insurance is used to protect the insured party against any shortfall between the purchase price, or total amount payable under a credit or hire agreement, and the amount an insurer will pay out, which is usually linked to market value at the time of the loss. The addon market for these products is when GAP insurance is sold alongside a motor vehicle.

The FCA has introduced the new rules out of a concern that GAP products being sold as an add-on have led to poor competition in the GAP market. The FCA has observed that typical customer behavior is to purchase such products almost as an afterthought at the point of sale, rather than with the diligence seen when purchasing other financial products. This analysis has been reached at least in part through the application of behavioral economics – something particularly in vogue with the FCA at the moment.