FCA suspends GAP ins sales

[DJMCUK]

The law (FCA rules) are there to protect gullible consumers against unscrupulous insurance sales people.

Nothing, yet, protects gullible Porsche buyers. That would be impossible to do. We're like moths.

[Jon A]

The law (FCA rules) are there to protect gullible consumers against unscrupulous insurance sales people.

Nothing, yet, protects gullible Porsche buyers. That would be impossible to do. We're like moths.

[Moriarty]

I wouldn’t be so sympathetic to the insurance companies and their brokers. Remember the Payment Protection Insurance (PPI) scandal, which was eventually (and rightly) deemed to be mis-sold in every single case? PPI insurance was essentially requiring the customer to insure the lender against the lender’s own risk of non-collection, which never made any sense but a lot of customers still bought it or were forced into buying it as a condition of their loan.

In this case, regarding excessive and undisclosed gap insurance commissions, I think it’s a fair cop if the information alleged by the FCA is correct. Insurance products need to be transparent because, left unregulated, insurers will design products and payment terms that are impossible to compare against competitors, and people get hoodwinked into over-paying. It’s hard enough to compare different insurance policies at the best of times, understand the risk/cost factors, or determine the fair price of each policy element or add-on. In reality when we buy car insurance we’re just hoping that one insurance company is looking to buy market share by offering a very low premium at the time (i.e. they are setting the premium based on the risk of loss and damage, rather than pricing based on their competitors’ premiums) - apart from this none of us has any idea at all of what we are buying or what a fair price would be.

Insurance is a completely assymmetric market where the insurer has all the information about the risk they are underwriting, and the customer has none. A 70% commission is de facto evidence of usury, since the broker is only contributing the customer relationship (which you initiated) and this cannot be a greater part of the cost than the actual cost of underwriting the risk of loss and damage for a £60,000+ car over three years.

[Scooby_Doo]

I wouldn’t be so sympathetic to the insurance companies and their brokers. Remember the Payment Protection Insurance (PPI) scandal, which was eventually (and rightly) deemed to be mis-sold in every single case? PPI insurance was essentially requiring the customer to insure the lender against the lender’s own risk of non-collection, which never made any sense but a lot of customers still bought it or were forced into buying it as a condition of their loan.

In this case, regarding excessive and undisclosed gap insurance commissions, I think it’s a fair cop if the information alleged by the FCA is correct. Insurance products need to be transparent because, left unregulated, insurers will design products and payment terms that are impossible to compare against competitors, and people get hoodwinked into over-paying. It’s hard enough to compare different insurance policies at the best of times, understand the risk/cost factors, or determine the fair price of each policy element or add-on. In reality when we buy car insurance we’re just hoping that one insurance company is looking to buy market share by offering a very low premium at the time (i.e. they are setting the premium based on the risk of loss and damage, rather than pricing based on their competitors’ premiums) - apart from this none of us has any idea at all of what we are buying or what a fair price would be.

Insurance is a completely assymmetric market where the insurer has all the information about the risk they are underwriting, and the customer has none. A 70% commission is de facto evidence of usury, since the broker is only contributing the customer relationship (which you initiated) and this cannot be a greater part of the cost than the actual cost of underwriting the risk of loss and damage for a £60,000+ car over three years.

I appreciate that people were forced to take out the PPI insurance and the claims were valid. As previous , ""I Assume"" that no buyer had to have GAP as a condition of sale or any loan associated with purchase ?

[Moriarty]

I wouldn’t be so sympathetic to the insurance companies and their brokers. Remember the Payment Protection Insurance (PPI) scandal, which was eventually (and rightly) deemed to be mis-sold in every single case? PPI insurance was essentially requiring the customer to insure the lender against the lender’s own risk of non-collection, which never made any sense but a lot of customers still bought it or were forced into buying it as a condition of their loan.

In this case, regarding excessive and undisclosed gap insurance commissions, I think it’s a fair cop if the information alleged by the FCA is correct. Insurance products need to be transparent because, left unregulated, insurers will design products and payment terms that are impossible to compare against competitors, and people get hoodwinked into over-paying. It’s hard enough to compare different insurance policies at the best of times, understand the risk/cost factors, or determine the fair price of each policy element or add-on. In reality when we buy car insurance we’re just hoping that one insurance company is looking to buy market share by offering a very low premium at the time (i.e. they are setting the premium based on the risk of loss and damage, rather than pricing based on their competitors’ premiums) - apart from this none of us has any idea at all of what we are buying or what a fair price would be.

Insurance is a completely assymmetric market where the insurer has all the information about the risk they are underwriting, and the customer has none. A 70% commission is de facto evidence of usury, since the broker is only contributing the customer relationship (which you initiated) and this cannot be a greater part of the cost than the actual cost of underwriting the risk of loss and damage for a £60,000+ car over three years.

I appreciate that people were forced to take out the PPI insurance and the claims were valid. As previous , ""I Assume"" that no buyer had to have GAP as a condition of sale or any loan associated with purchase ?

PPI wasn’t banned only because customers were forced into taking it. It was banned because it is a fundamentally wrong product, regardless of how it is sold. The primary beneficiary of a PPI insurance policy is the lender, not the person paying the insurance premium. I always thought Identity Theft insurance was a scam too, for the same reason. Under the banking code, if you are victim to identity theft the bank is liable for losses, not you, so why would you need insurance? Mobile phone providers try to sell insurance against bills that someone who steals your phone may rack up, but why would you pay for those charges after you’ve reported your phone stolen? That’s the phone company’s risk, not yours, and of course the actual loss to them is tiny compared to what they would like to charge you or your insurer for the calls and data.

Gap insurance isn’t necessarily a wrong product like those, it is just very easy to overprice because valuing the risk is so complicated (when will your car be stolen and what is the value of your car then?), yet the emotional idea of getting a new car instead of a post-depreciation payout is attractive. If 70% of your premium is paid as commission to a car dealership who isn’t insuring anything, then you’d be paying more than three times what a reasonable premium should be - but how would you estimate what these policies actually cost the insurer? It’s good that the regulator is requiring insurance premiums to bear some relationship to the risks being insured, rather than being priced based on irrational fears.

[JurassicGTS]

Whilst I understand why GAP is being suspended due to the commissions being paid to the stealers, it is a shame that companies like ALA who are very competitive in the market and come with a strong reputation of customer service are then also blocked from marketing their product directly to consumers.

[JurassicGTS]

Just checked and ALA's product is still being quoted on their website

[DJMCUK]

Just to be clear, the major issue with PPI was that people didn't know it had been added to loan repayments, in other words non-disclosure yet again.

PPI would cover a debtor's repayments if they had an accident, were off work sick, or made redundant, any of which stopped or lowered their income.

Accident, sickness, and redundancy cover is still available today and widely sold alongside a mortgage or other loan. The difference is it's not badged "PPI" nor sold without the knowledge of the consumer.

Like any insurance such as life, critical illness, private medical, permanent health, contents, people actually want to protect their mortgages, health, income, property and so insurance sales people abound. That some were unscrupulous is a feature of any industry but the regulations, vetting, and constant training nowadays see the majority being honest and the dishonest driven out soon enough.

[JurassicGTS]

Just received this email from ALA

"You may have read recently that the FCA have asked for GAP providers to pause their activity while they look into fair value of the product. We provided an extensive document, alongside our underwriters, to illustrate our fair value business practices and how we pave the way for consumer-first insurance.

We heard from the FCA yesterday that we have permission to continue to provide GAP insurance while they review the rest of the fair value submissions from other businesses. They have also extended GAP activity for other online providers (as it currently stands) until 30th April.

We know that they have received our submission and have reviewed it as a priority. We are confident that we will be able to provide GAP beyond the 30th April.

This is all great news for you - the consumer - as the option of being able to buy GAP insurance for your vehicle is still available. We believe that every consumer should have the choice to purchase a fair value product such as GAP, and that online providers like ourselves should not be lumped together with car dealership hard-sell tactics.

Please feel free to get in touch with any questions you might have, we’d be happy to answer any questions we can.

Thank you for all your support and for the wonderful reviews we receive from you.

Best wishes,

Simon England

[Bomber]

I've seen all the news about these mis-selling claims but can't understand how they were mis-sold. Was there somebody holding a gun to the customers' heads to get them to sign ?????

It's a case of non-disclosure of the big commissions being paid to the sales people.

Non-disclosure is something that will bite any service/finance provider in the ar$e.
I benefited from a non-disclosure becoming apparent during a PCP deal I was under with Land Rover about 10years ago or so.
During the finance period they (Black horse I think) wrote to me to state that they had failed to disclose my rights correctly and as such weren’t entitled to any of the interest they had charged me from start of the agreement to that point - so they refunded me £3-£4k from memory.
Put it towards the final payment I was planning to make anyway