Guaranteed asset protection (Gap) is being hailed as a “vital safeguard” against financial ruin, just 18 months after the Financial Conduct Authority requested that insurers stop selling it.
Gap insurance covers the difference between a car’s purchase price or the amount of finance owed on it and its current market value in the event that the car is written off before the finance has been repaid.
In February 2024, the FCA said it was concerned such products were failing to provide fair value to consumers, with only 6% of the amount they were paying in premiums being paid out in claims. Further, the FCA said it had seen examples of some firms paying out as much as 70% of the value of insurance premiums in commission to parties involved in selling Gap insurance policies.
Three months later, in May 2024, the FCA announced that firms that had reduced their commission payouts had been permitted to restart sales of Gap insurance.
Today, with Gap insurance once again freely available, companies selling such cover say that car buyers can’t afford not to have it.
Their argument rests on their claim that insurers are now more likely to write off damaged cars, owing to the rising costs of repairing them and the current dearth of, and difficulty in obtaining, spare parts. With depreciation eroding used car values and thereby reducing the settlement sums paid by insurers and new cars becoming more expensive, motorists who have finance balances to clear and more money to find for their next car risk being seriously out of pocket. This also applies in the case of stolen cars.
Motoreasy – a company that sells Gap insurance, charging around £192 for a three-year policy – says its average claims payout has more than tripled in three years, from £1587 in 2021 to £5559 in 2024. For electric vehicles, some of which can lose up to 60% of their value in two years, Motoreasy says its payouts have exceeded £20,000.
Founder Duncan McClure Fisher said: “Our findings underscore the growing financial risks faced by car owners due to rapid vehicle depreciation, rising new car costs, spare parts shortages leading to insurance writeoffs and a surge in vehicle theft. The combination of so many influential factors has created a perfect storm, where Gap insurance is no longer just a nice-to-have but an increasingly vital financial safeguard.”
The expert's view on Gap insurance
Gap insurance has a reputation for benefiting dealers rather than their customers, resulting from high-pressure sales tactics and the FCA’s verdict that it wasn’t delivering fair value.
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Stats, stats and more stats.
The average payout has risen to blah, blah, blah. Might be more uselful to know how many claims are actually paid out and how many GAP customers actually claimed? It'd be even better to give us a real world example of that average payout.
And then they say the avg price in '21 was £1587 but in '24 £5559. I don't believe a word of that. Yes, of course car prices have gone thru the roof, but so have the used values. My 'cost to change' hasn't really gone up much, and it's that 'cost to change' that GAP is all about. So that more than double the difference in 3yrs smells of BS to me.
Speaking of sales pitch, have a go at trying to google for anyone's real life experience of claiming on GAP. You're bombarded by thousands of articles from finance companies and armchair experts, but real world examples of claims from real people are very few and far between. I've been searching for 10mins and I haven't found a single one - it's all speculation. The whole GAP industry has scam written all over it.
I suspect that this article has appeared as vehicles that were once written off only after a big accident, however in today's cars there are a myriad of electrical/electronic gadgets that are more costly to fix and 'nearly impossible' to reintegrate into a vehicle once it has been damaged and if they were possible to repair and would require expensive manufacturer calibration devices to set it up so it's easier to get rid of them off the books and leave the buyer to sort it out despite already having insurance.