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Changes in GAP Insurance

Increased regulation has been a reality of the automotive F&I landscape for many years. One of the defining themes has been the detailed interrogation how dealers, brokers, lenders and product providers conduct their business.

Looking back to 2014, the FCA published its final findings report following a thematic review of GAP policies. It was suggested that the lack of competition throughout the industry for this type of insurance led to inflated prices at the point of sale, meaning consumers were not receiving value for money.

Following on from this, in September 2015, the FCA introduced new rules to standardise how this insurance had to be marketed and sold. This included deferring the opt-in period – allowing the consumer two clear days after the information had been provided to them – before a contract can be concluded.

Fast forward to July 2018 and a new report was published, evaluating how this intervention has impacted the performance of this product during the car buying process. The findings indicated that the sector has witnessed a 16-23% reduction in sales, and prices of the add-on are 2-3% lower than previously.

In addition, the anticipated uptake of GAP policies by stand-alone providers hasn’t taken up the slack, with only a 3% increase being reported.

It’s clearly a tricky time for suppliers of value-added products, and the perceived advantage of having point of sale access to the customer has been removed. So, how do dealerships manage the deferred opt-in period?

At DealTrak we work with dealers, brokers, lenders and add-on product providers of all shapes and sizes. We believe there are a few measures that could be taken to work with the legislation, ensuring a positive outcome for everyone involved.

As margins are under pressure, it’s important for vehicle sellers to look at new measures to diversify their product portfolio and enable the customer to benefit from a range of services designed to protect their vehicle. This will enable dealers to safeguard overall F&I income while offering customers a greater level of protection, meaning the principle of creating a balanced sell is more important than ever.

Dealers should also consider their methods for distributing information to potential purchasers. 26% of them stated that they do not recall receiving GAP documentation, indicating there is clearly work to be done to improve this part of the sales process across the industry. Managing the deferred opt-in period – and ensuring vehicle buyers are fully informed of all of their options throughout the process – is critical to the overall success of the deal.

And, with this procedure starting earlier than ever before, dealers should look to bring product presentation information onto their websites. As GAP is becoming more of a ‘planned purchase’, 49% of consumers are deciding, before investing in a vehicle, whether to select an add-on product.

All these changes have resulted in a lengthier purchase completion time, because there are extra ways for the customer to interact with the seller and dealers now have additional information to distribute, which means they have more data to evidence in order to be fully compliant.

How can DealTrak help with this?

We are committed to assisting all of our partners in navigating this increasingly regulated landscape. Our new dedicated Compliance Module inserts questions at appropriate stages throughout the process, to ensure that all actions around the sale of F&I products are concluded in a protected way.

In addition, all steps are documented and recorded to ensure that our users are following the FCA’s best practice at all times. All value add products including GAP insurance can be added into deals directly from the platform – this is made possible due to the integrations that DealTrak has developed with leading product providers looking to support efficiencies within a dealer sales process.

For information on how DealTrak can assist you and your team in all areas of F&I including functionality to assist in compliance, please feel free to get in touch with us.


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