Discretionary Commission in GAP Insurance – Evidence submitted to the FCA

While the motor finance mis-selling scandal rumbles on, we’ve been digging into another product that is usually sold in the same showroom, at the same desk, often in the same rushed conversation: GAP (or RTI) insurance.

And what we’ve uncovered in black and white is deeply familiar.

We’ve obtained written evidence from a GAP product administrator that dealerships have been allowed to set their own commission on GAP products, in exactly the sort of structure that drove the discretionary commission scandal in motor finance.

We’ve now shared this evidence with the FCA and will be pushing hard for a full, forensic investigation into the GAP insurance market – one that goes well beyond the box-ticking exercise the regulator carried out in 2024.

What our evidence shows

In a recent complaint response from a major GAP product administrator, the firm openly explains how pricing worked on a historic GAP sale:

• The manufacturer (underwriter) sets a net price for the policy.
• The administrator adds it’s remuneration, and then applies a 50% commission cap for the retailer (the dealership) to add.
• Crucially, the administrator told the retailer that it was responsible for deciding the actual commission to add to the product, so long as it stayed within that cap.
• In the case we reviewed, the retailer went beyond the very generous cap and added 78% commission.

In plain English: That is a discretionary commission structure in all but name.

In other correspondence, a dealership insists that it “made a profit” on the sale of the GAP product rather than “earning commission”. Whether you call it commission, profit, or margin, the economic reality is the same: the dealer’s financial reward goes up as the customer’s price goes up.

How this mirrors the motor finance scandal

If you’ve followed the motor finance scandal, this will ring alarm bells.

In motor finance, discretionary commission arrangements (DCAs) allowed dealers to:

• Set or influence the interest rate; and
• Take a higher commission when the customer paid a higher rate.

The Supreme Court ruled that these arrangements were unlawful, and create an unfair relationship, and the FCA is now (slowly) working on what could become Britain’s biggest redress scheme since PPI.

What we’re seeing in GAP looks eerily similar:

• Instead of tweaking interest rates, dealers tweak GAP policy costs.
• Instead of higher rate = higher commission, it’s higher premium = higher commission.
• The consumer is never told that the dealer has this discretion, let alone how much of their premium is really just profit for the chain of parties involved (often well over 50% of the cost to the consumer).

Combine that with the FCA’s own data, showing that historically only a tiny percentage of GAP premiums have been paid out in claims (around 6%), while large proportions of premiums have gone in commissions, and you start to see why this will be the next mis-selling scandal.

The FCA’s 2024 intervention: necessary, but not nearly enough

To be fair, the FCA has already intervened in GAP:

• In February 2024, it announced that multiple insurers, covering a very large share of the GAP market, had agreed to pause sales due to fair value concerns.
• The regulator highlighted exactly those shocking figures: tiny claim payouts, huge commissions.
• By May 2024, some firms were allowed to restart sales after reducing commission levels and making other changes. This serves as evidence that commission levels prior to February 2024 were unfair and affected fair value.

On paper, that all sounds decisive. In practice, from where we’re sitting, it looks worryingly like the usual box-ticking exercise:

• The FCA focused on headline value measures and average commission levels, apparently failing to identify the commission arrangements.
• It chose not to impose any fines, nor admit there were systemic failings as a result of undisclosed commission, nor take steps toward a redress scheme.
• Our documents show precisely how large commissions and discretion was built into real-world GAP schemes, including clear wording that the retailer decides the commission within a cap.

For a regulator that has been warning about add-on insurance and poor value for more than a decade, that simply isn’t good enough.

When structures like this exist under the FCA’s nose, in a market the regulator has already labelled a problem child, you are entitled to ask whether the watchdog has been asleep at the wheel again.

What we’ve done: sharing our evidence with the FCA

We don’t think the FCA has taken GAP insurance mis-selling seriously, mirroring it’s approach to motor finance mis-selling which was brought to it’s attention way ack in 2016.

So we have:

• Compiled the documentary evidence we’ve obtained in GAP complaint files – including:
  • direct admission confirming that dealers were free to set their own commission within a cap;
  • how this played out in real transactions, with sizeable gaps between net price and the amount charged to the customer.
• Submitted this material to the FCA, making it clear that in our view these structures mirror the discretionary commission model now infamous in motor finance.
• Called for a further, deeper investigation into the GAP insurance market, with a focus on:
  • administrator, distributor, seller, dealership and lender incentives (the full chain);
  • pricing discretion;
  • disclosure (or lack of it) around commissions and margins;
  • the scale of the issue, and the number of consumers have been treated fairly.

We will keep engaging with the regulator and pressing for a review that looks beyond averages and PowerPoint charts and gets to the heart of how these products were designed, priced and sold.

Our expectation and our demand is for something far more thorough than what we saw in 2024.

What this means for consumers

GAP insurance mis-selling will be the next scandal on the horizon for the same reasons as PPI and motor finance, commission and profit.

Right now, customers will have no way of answering those questions without digging into old paperwork and fighting for disclosures.

That’s where we step in, and exactly why we think the FCA needs to stand up, just as it has (belatedly) done in motor finance – to:

• investigate historic GAP commission structures;
• assess to what extent consumers were mis-sold;
• and, if necessary, develop a redress framework so people can be compensated fairly.

Our message to the regulator

To the FCA, our message is simple:

• You have already correctly recognised that GAP insurance hasn’t been giving customers fair value as a result of commission.
• Our evidence suggests that, under the surface, incentive structures very similar to motor finance DCAs have been operating in this market.
• That demands more than tweaks to value assessments. It demands a proper investigation into historic sales and commission structures, and a clear plan for putting things right.