We hear from people who think they’ve been mis-sold Guaranteed Asset Protection (GAP) insurance or are unhappy about the GAP insurer’s offer after a claim.
Types of complaint we see
Customers might get in touch with us because:
- their claim has been rejected
- they think they’ve been mis-sold the policy or given unclear information
- they’ve had a pay-out, but it’s not enough to cover the gap
- they’re due a pay-out, but their GAP insurer is taking too long to pay and they are still paying the finance on the vehicle
- they’ve cancelled their insurance but didn’t get anything back
Handling a complaint like this
When you receive a complaint, you should reply to your customer within the relevant time limits.
If you don’t reply within the time limits, or the customer disagrees with your response, they can bring their complaint to us. We’ll check it’s something we can deal with, and if it is, we’ll investigate.
We’ll expect you to be able to show us that you’ve investigated the complaint thoroughly and have reflected carefully on the circumstances of the events.
Find out more about how to resolve a complaint.
What we look at
We normally ask for information from both you and the customer to help us work out what happened. This may include:
- the policy document and key facts
- copies of any sales recordings or scripts
- a demands and needs statement
- a copy of the settlement offered
Here’s a bit more detail on what we look at for specific complaints:
If you’ve rejected a claim based on an exclusion or breach of a condition in the policy terms, we’ll check that the exclusion or condition is relevant to the claim. Some examples of common terms we see are:
- the claim was for a vehicle the policyholder doesn’t own
- the claim was fraudulent
- the vehicle has been used for racing
- the customer turned down the offer of a new vehicle replacement under their motor insurance policy
- the policyholder doesn’t have ‘comprehensive’ motor insurance
We may think it’s unfair to refuse a claim because a consumer doesn’t have comprehensive insurance. The GAP insurer can work out the market value amount that the motor insurer would have had to pay out, and use this to calculate any settlement due under the GAP policy.
As with all mis-sale complaints, we’ll look at whether the information that you gave to the customer during the sales process was clear, fair and not misleading.
We hear from people who’ve tried to make a claim on their GAP insurance, only to find that they’re not covered. They then complain the policy was mis-sold, or we realise that this is what they’re really complaining about.
We’ll check that you made a suitable recommendation, and explained the key features of the GAP insurance and any significant exclusions or limitations when you sold the policy. Most GAP insurance policies are sold in person, so we’ll ask for information from both the salesperson and the customer. We’ll also ask for evidence including:
- the policy or key facts document
- sales documents, such as an invoice
- a GAP application form
- the loan application and agreement
- any call recordings if the GAP was sold over the phone
If we find a policy term has been clearly explained, we’ll then check that it’s been fairly applied.
If you recommended the GAP insurance, we’ll look at whether it was suitable for that particular person. For example, a customer may have been sold GAP insurance to cover the cost of a new car, but they actually needed it to cover car finance.
If you made an unsuitable recommendation or didn’t explain the significant exclusions or limitations, we’ll look at whether this affected what the customer did. We might decide that they wouldn’t have done anything differently. But if we think that it would have changed their decision to buy GAP insurance or even the vehicle, we’ll tell you to put things right.
If you recommended you the policy, we’ll consider whether:
- it was obvious the policy wasn’t suitable for that customer – for example, they couldn’t have benefited from it
- the customer actually needed it – for example, motor insurance policies often provide a new vehicle if the insured vehicle is less than a year old, so there’s often no point having GAP in the first year
- you recommended the right type of GAP policy – for example, you recommended Finance GAP insurance, but because the customer paid such a large deposit, the policy doesn’t cover the deposit as there would never be a shortfall on the finance
- the customer paid more than the car was really worth
- you told the customer what the GAP insurance would cover – for example, some people are led to think GAP will cover finance for extra products they buy at the same time as the vehicle
If you didn’t recommend the policy, we’d still expect you to have highlighted most of these things as significant limitations or exclusions. This is so that your customer could have made an informed decision on the whether the policy was right for their needs.
Policies sold from September 2015
Since 1 September 2015, the Financial Conduct Authority (FCA) said that GAP insurance can no longer be sold on the same day as the car and loan. Sellers have to give the customer at least two days from providing the information required before they conclude the contract.
This gives customers a chance to think before buying GAP insurance, and reduces the chance of them feeling pressured into taking out the policy.
Read more on this in ICOBS section 6A.1.5 of the FCA handbook.
In cases where the amount given in a claim doesn’t cover the gap, there’s usually a dispute about the market value of the car.
To work out what’s happened, we’ll check:
- that the settlement has been worked out correctly
- what the policy terms says about paying claims
- how much the motor insurer paid and whether they made any deductions
- whether there any limitations or conditions that may affect the claim payment
- whether the settlement is in line with any definitions of ‘purchase price’ or ‘net invoice selling price’ in the policy
GAP insurers normally exclude negative equity from any pay out. This is the amount to cover any difference between the value of the car being traded in and the outstanding finance. We usually think it’s fair to do this as long as it’s been made clear in the policy.
We hear from people who are unhappy with the amount their car insurance company has paid out, or that they’ve already accepted an offer that’s less than their vehicle’s market value. This isn’t the GAP insurer’s responsibility, and we’ll explain that the customer needs to bring these to their motor insurer.
Read more about our approach to vehicle valuations.
Some people complain that their GAP insurer is taking a long time to pay out and that they’ve had to continue paying finance in the meantime.
When a claim has taken longer than expected, we’ll ask you to explain why and how you’ve communicated this with your customer. Where we think the delay is unjustified or your customer service has been poor, we’re likely to tell you to pay compensation for the inconvenience caused.
A GAP insurer can only pay out once the claim with the motor insurer has been settled because before then, the ‘gap’ isn’t known. If it turns out the delay is on the motor insurer’s part, we’ll explain that this can be raised with the motor insurer.
Some people complain that their GAP insurer hasn’t refunded any of their premiums after they’ve cancelled their policy.
We’ll check the policy terms and conditions to make sure you’ve followed these when cancelling the policy and that they’re fair. Some policies have a ‘cooling-off period’, and if it’s cancelled outside of this, a refund won’t be given. We’ll check you made important information like this clear when the policy was sold.
Putting things right
If we decide you’ve treated the customer unfairly, or have made a mistake, we’ll ask you to put things right. Our general approach is that the customer should be put back in the position they would have been in if the problem hadn’t happened.
If a GAP insurance policy shouldn’t have been sold at all, we’re likely to tell you to:
- refund the premiums
- work out compensation to change or reflect the revision needed to the finance agreement if the GAP was brought on finance
We’ll normally also tell you to add 8% interest on top. If the customer paid for the GAP policy on finance, we’ll make sure this is taken into account.
If we decide the policy was unsuitable or an important policy term wasn’t clearly explained, we’ll look at how this affected the customer’s decision to take out the policy. This could mean you paying a significant amount, especially if we don’t think the customer would have bought the vehicle.
If a policy is cancelled early, we're likely to tell you to give a pro-rata refund, taking off a small fee for administration. But if the customer has already used their GAP insurance, we’ll usually say it’s fair not to give any refund.
In some cases, we may also ask you to compensate the customer for any distress or inconvenience they've experienced as a result of the problem.
Read more about how we award compensation.
GAP insurer won’t cover full cost of finance because of policy term
Consumer cancels GAP policy but receives less than expected
Consumer refuses replacement car and claim is rejected
If you want to talk informally about a complaint you've received, you can speak to our technical desk. They can give general information on how the Financial Ombudsman might look at a particular complaint. We also offer guidance on our rules and how we work.
Find out how to contact the technical desk.