(Sharecast News) – The competition watchdog has warned motor insurers that they must provide better value for customers buying certain add-on products.
The Financial Conduct Authority said on Wednesday it had identified evidence that guaranteed asset protection (GAP) products may be failing to provide fair value.
GAP products, which are sold as add-ons to motor insurance, cover the difference between the vehicle’s purchase price and its current market value.
But according to the FCA, only 6% of the amount customers pay in premiums is paid out in claims. In addition, the regulator said it had seen examples of some firms paying out up to 70% of the value of premiums in commission to parties in the distribution chain, such as motor dealerships.
The FCA said insurers now had three months to take “immediate action” and prove their customers are getting a fair deal, or face direct intervention from the regulator.
Matt Brewis, director of insurance at the FCA, said: “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.”
The FCA has also written to all insurance firms reminding them of its expectations to make sure they check that all their products provide fair value for their customers.