Twice Hit by Discretionary Commission: How GAP Insurance Got Caught in the Crossfire

Many people have now heard of discretionary commission arrangements (DCAs) in motor finance, the unlawful and hidden setup where dealers could quietly tweak the interest rate on a motor loan and pocket more commission when the customer paid more. The FCA has called this out and banned it in motor finance from 2021, albeit five years after it was brought to it’s attention.

But there’s a story nobody has really considered….YET:

What if GAP insurance was being hit by discretionary commission twice – once inside the GAP product itself, and then again when that inflated premium was rolled into a motor finance agreement that also used a DCA?

That is exactly the risk we’re seeing in real cases, and it should alarm anyone who cares about fair value (the FCA!).

The GAP supply chain: five bites at your premium

GAP insurance is a simple product, but it often involves a whole chain of parties, each taking their slice of the total cost to the consumer:

• Underwriter / manufacturer – the insurer who ultimately takes the risk and sets the net price.
• Administrator – designs the scheme, handles claims and paperwork.
• Distributor – sits between the manufacturer and the retailer, shaping how the product is sold.
• Seller – usually the dealership sat in front of you in the showroom.
• Lender – if the GAP product is added to the finance agreement, the finance provider charges interest on it.

In 2024 the FCA raised serious concerns about fair value within GAP products. It has highlighted that only a tiny percentage of GAP premiums are paid out in claims (6%), while a significant, and often majority proportion being swallowed up by commission and other distribution costs. Compare this with home insurance (50%) and motor insurance (65%) and the issue is clear.

So even before we start to talk about DCAs, GAP is already an add-on with a long history of poor value and heavy commissions.

Our evidence: discretionary commission inside GAP itself

We have documentary evidence directly from a GAP product administrator that takes this a step further.

In the documentation we have on file, the seller (dealership), was explicitly allowed to set its own commission within a cap. The structure works like this:

• The manufacturer sets a net price for the GAP policy and carries out a fair value assessment that is shared with the chain thereafter.
• The administrator adds its commission, as does the distributor.
• The seller (dealer) is allowed to set its own commission within a cap, set by the administrator or distributor.
• The difference between net price and selling price is effectively in the control of the dealership, and it must satisfy itself that the end cost still represents fair value to the consumer.

This is a discretionary commission arrangement inside the GAP product:

• The higher the price the dealer charges for GAP,
• the more commission or margin they earn,
• and the less value the customer gets for every pound they pay for the product.

We have already submitted this evidence to the FCA, making it clear that this requires immediate attention and intervention given it is now beyond any reasonable doubt that the culture of mis-selling within motor finance went far beyond the actual motor finance agreement itself.

When the GAP premium is financed… and the motor finance agreement has a DCA too

On its own, discretionary commission in GAP is bad enough. But in many cases, the damage doesn’t stop there.

GAP is typically sold alongside a motor finance agreement and often rolled into the motor finance agreement itself, whether stated directly on the agreement or included within the ‘Cost of Goods’.

Now imagine this:

Stage 1 – GAP DCA

• The net cost of the GAP premium from the manufacturer is set at £50.
• The administrator and distributor both add a further £25 each, taking the cost to £100.
• The dealership is allowed to set the retail price up to a maximum of £350.
• The dealership sets the price at the maximum £350, and pockets the £250 difference as commission/margin.
• The GAP product is already loaded with discretionary commission at this first stage.

Stage 2 – Motor finance DCA

• That £350 GAP premium is added to the finance agreement.
• Before 2021, many lenders allowed dealers to adjust the interest rate on the whole loan under a motor finance DCA – the higher the rate, the more commission the dealer received.
• End result. Not only is the customer paying an inflated price for GAP, they are also paying inflated interest on that inflated product.

In other words, the same GAP policy can be hit by discretionary commission twice:

• once in the GAP pricing itself (the dealer setting their own commission); and
• again in the interest rate on the finance agreement if that agreement also used a DCA.

All of this is to the clear detriment of the consumer:

• They don’t just overpay for the GAP insurance.
• They then overpay interest on that overpayment for years, effectively borrowing money to pay for commission for all parties involved.

Even with simple numbers, the double hit is obvious:

• If the “fair” net cost of GAP is £50 but you’re charged £350, that’s £300 extra upfront.
• If that £350 is then financed on a DCA-inflated rate instead of a fair one, you can easily add another hundred pounds or more in extra interest over the term, just on the GAP slice of the loan.

And that’s before you even ask whether the GAP cover itself ever comes close to paying out what was taken from you in premiums.

A systemic blind spot?

The FCA has belatedly:

• Banned DCAs in motor finance from 2021, recognising that linking dealer commission to interest rates created an obvious conflict and drove higher costs for customers.
• Forced GAP insurers to pause sales because these products were not offering fair value, particularly given low claims ratios and high distribution costs. It is clear however that the FCA failed to uncover DCAs within GAP.

But our evidence suggests a dangerous overlap that hasn’t yet had the spotlight it deserves:

GAP products designed and sold in a way that allows discretionary commission for the dealer, then financed on motor loans that also used discretionary commission on the interest rate.

The customer is never told:

• that their GAP premium may have been inflated by a discretionary commission structure; or
• that the inflated premium is then being used as fuel for another DCA in the motor finance agreement.

From the consumer’s perspective, this is one seamless transaction: “I bought a car on finance with GAP.”. Under the bonnet however, they may have been hit by DCAs twice on the same product.

What we’ve done – and what needs to happen next

We have:

• Gathered documentary evidence showing how some GAP products allowed dealers to set their own commission within caps.
• Submitted this evidence to the FCA, specifically highlighting the risk that GAP insurance has been affected by DCA at two distinct stages to consumers’ clear detriment.
• Submitted multiple complaints to lenders, dealerships and escalating these to the Financial Ombudsman Service for review. We’ve been advised that decisions will commence being provided in early 2026. The evidence is overwhelming.

In our view, the regulator now needs to:

1. Investigate the use of discretionary commission inside GAP distribution, not just in the motor finance interest rate.
2. Map the overlap and identify how many GAP policies, sold as add-ons, were rolled into finance agreements that also used DCAs.
3. Treat these double-hit customers as a priority category for redress, recognising that they may have suffered more harm than someone only affected at one level (which is bad enough in itself).

If the FCA is serious about fair value and Consumer Duty, it can’t ignore a scenario where:

• an add-on product it already views as poor value;
• is being used as commission fuel twice over;
• with the extra cost hidden inside complex chains of underwriters, administrators, distributors, sellers and lenders.

Because if GAP has been hit by DCA at two points in the journey, then drivers haven’t just been short-changed. They’ve been double-charged for the privilege.