LONDON (Reuters): UK’s Financial Conduct Authority (FCA) has told car insurers they have three months to improve the value they give customers in products that top up coverage, or face potential sanctions.
The FCA said on Wednesday it had asked insurers to check if their products offer value for money, a requirement reinforced by the watchdog’s tougher general “consumer duty” rule that came into force in July.
It said it had identified further evidence that some guaranteed asset protection products (GAP), which cover the difference between a car’s purchase price and its current market value, were probably not meeting its rules on value.
GAP insurance covers shortfalls when a car is written off or stolen, for example.
“This is an early signal of the work we’ll be doing under the consumer duty,” Matt Brewis, director of insurance at the FCA, said in a statement.
“If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator,” Brewis said.
The FCA said its latest data showed that for GAP insurance only 6% of the amount customers pay in premiums is paid out in claims.
The FCA added there were examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain, such as motor dealerships.
More generally in retail insurance, which includes home insurance, the FCA said that too often it finds significant failings in areas such as discriminatory pricing practices and instances of very long waiting times and settlement delays.
“The Financial Ombudsman Service’s data for April to June 2023 shows that complaints relating to motor and buildings insurance have reached their highest level in five years,” the FCA said.