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The Financial Conduct Authority has told suppliers of Guaranteed Asset Protection (GAP) product they have three months to prove consumers are getting a fair deal or it will intervene.
It said its data showed for GAP insurance only 6% of the amount customers pay in premiums is paid out in claims.
And it had seen examples of some firms paying out up to 70% of the value of insurance premiums in commission to motor dealerships.
The FCA has told firms manufacturing GAP insurance products they must take immediate action to prove customers are getting a fair deal, or it will intervene, giving firms a three-month ultimatum.
Matt Brewis, Director of Insurance, FCA said:
“This is an early signal of the work we’ll be doing under the Consumer Duty.
“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.”
In 2021, rules were introduced requiring insurers to ensure their products provide fair value, which included submitting regular Value Measures Data to the FCA, the latest of which is published today.