In Focus: Was Gap insurance ‘unfairly targeted’ by the FCA?

Guaranteed asset protection (Gap) insurance was “unfairly targeted” by the FCA in the last year, with the way the market was shut down in February 2024 being “unheard of”.

That was according to Paul Fuller, managing director at Gap provider AMS Insurance, who felt the regulator’s actions last year were affecting growth in the motor insurance market.

Gap is an add-on to motor insurance that covers the difference between a vehicle’s purchase price and its current market value.

Just two months after the new Consumer Duty rules were introduced in July 2023, the FCA issued a statement explaining that it felt the product was failing to provide fair value to some consumers.

Therefore, in February 2024, the regulator confirmed that 80% of the gap market had agreed to suspend sales while service improvements were investigated by firms. The FCA later sent further requests to the remaining 20% of companies selling this line of business to pause gap sales in a second swift tranche of engagement.

In May 2024, the regulator said that some firms had restarted gap sales – to achieve this, businesses needed to demonstrate that their products provided fair value to customers, in line with FCA rules.

This slew of action followed findings in the FCA’s 2022 general insurance fair value measures data, published 20 September 2023, which showed that only 6% of the amount customers pay in premiums for gap was paid out in claims.

Fuller felt that the FCA targeted gap insurance based on this 6% figure – however, although this number may be accurate for the first year of a gap policy, this particular product is often “a three, four, sometimes five-year product”, he noted.

This means that the relationship between premiums paid and claims is slightly different compared to more commonly purchased, annual covers. “As you roll [gap policies] out, there will be more claims to pay,” Fuller said.

Data comparison

AMS Insurance shared its own data exclusively with Insurance Times, which showed that during 2022, 23.1% of policyholders’ premium was paid out in claims for add-on gap, while the average claim payout stood at £3,808. This is up from the FCA’s figure of £2,201 that was mentioned in the aforementioned fair value measures report.

Meanwhile, for standalone gap insurance, AMS said its figures showed 63.5% of premium was paid out in claims, with the average claim payout standing at £4,520 – up from £536 suggested by the FCA.

The FCA’s figures are based on market-wide analysis, while AMS Insurance’s data is based on its own performance. The FCA estimated that the UK’s gap insurance market was worth around £152m annually, according to an evaluation paper published in July 2018.

Fuller said that after speaking directly to other gap providers, “their numbers are aligned to ours”.

Fuller additionally highlighted figures from the FCA’s fair value measures report for 2023, published 21 August 2024, which showed that claims complaints for gap insurance are below 4%, while claims acceptance rates are above 95%.

He explained: “Claims complaints for gap are very low, while [claims complaints for other lines of business] are a lot higher, so that would give you a little bit of concern over a different product.

“Additionally, claims acceptance rates for gap are extremely high, whereas other products were sitting at 53%, so that would show you there might be a problem with those products.

“We believe [the FCA] unfairly targeted gap and the way [it has] gone about it, [by] closing down an entire market, is unheard of.”

For Fuller, another reason the FCA focused on gap insurance was because it said it had seen examples of some firms paying out 70% of the value of insurance premiums in commission to parties involved in selling gap policies.

Fuller said that while certain areas of the market may have been getting higher commissions, “why not focus on that area” specifically?

He added: “There are numerous distribution channels, why close the whole market?

“Because [some gap providers] may not be performing well and that’s the key thing here. [Some] may not be performing well, but [others] may be performing well, so how can you shut down a market, put people’s jobs at risk, businesses at risk and the consumer at harm?

“The key things we really want to get out here is the harm that’s being caused to the consumer, to business and growth in the sector.

“The way that [the FCA] handled this, people have looked from the outside and thought ‘wow, look at what [the regulator is] doing to gap, where [is it] going to go next?’”

Product hesitancy 

While firms were allowed to recommence sales of gap products in May last year, data from Intelligent Motoring, published on 17 March 2025, showed that 90% of motor dealers are no longer offering the product.

Duncan McClure Fisher, chief executive at Intelligent Motoring, said that “many retailers appear hesitant to sell the product” following the FCA’s investigation.

He added: “With vehicle values normalising after Covid and electric vehicle residuals declining, claim payouts are regularly exceeding £20,000 to £30,000, demonstrating the critical protection gap cover provides. Many retailers appear hesitant to sell the product, with only around one in 10 advertising it to customers.

“This may be due to increased net rates and capped retail premiums, but flexible solutions are available to ensure dealers can offer fair value products that protect consumers, foster invaluable customer loyalty and provide an all-important revenue boost.

“We encourage those retailers hesitating to make a gap return to seize the opportunity.”

The FCA has stressed that gap insurance had improved since its intervention, noting that firms had reviewed their gap offerings and worked to ensure better value.

A spokesperson from the regulator said: “We put a pause on the sale of gap because we found consumers weren’t getting a fair deal.

“Firms that have worked with us and provided evidence of fair value have started to sell gap again and we are continuing to work with the market to achieve better outcomes for consumers.”