FOS Still Doesn’t Understand GAP Insurance — And Consumers Are Paying the Price

We continue to educate the Financial Ombudsman Service (FOS) as a result of its troubling lack of understanding of GAP insurance complaints, particularly where GAP was financed through a lender and the underlying finance agreement is (or was) subject to a discretionary commission arrangement (DCA).

These complaints do not need to be placed on hold. Yet we continue to see cases frozen, progress stalled, and consumers left in limbo. This isn’t because a fair resolution is impossible, but because FOS appears to be applying a blunt “one-size-fits-all” interpretation that simply doesn’t fit the product.

In this article

• Why these complaints should not be on hold
• Two separate issues: motor finance commission vs insurance fair value
• A fair resolution is straightforward
• The “underwriter cost vs consumer price” test
• Why FOS keeps needing to be educated
• What FOS should do now

Why these complaints should not be on hold

The FCA’s temporary complaint handling pause was introduced to avoid disorderly outcomes in motor finance commission cases while the regulator (slowly) considers next steps. That is a real, significant policy intervention.

But it does not follow that every complaint which happens to involve a motor finance agreement should be automatically frozen, especially where a central complaint point is about an insurance product and its lack of fair value.

FOS is meant to assess complaints on the merits of the complaints. Instead, what we see far too often is administrative convenience dressed up as regulatory caution, a reflexive decision to “hold” cases that could and should be resolved now.

This is not consumer protection. It is delay in favour of lenders (again), and it risks becoming a denial of justice by attrition.

Relevant FCA background reading:
FCA statement: pause on motor finance complaints handling to lift on 31 May 2026
FCA press release: GAP insurers agree to suspend sales following FCA concerns over fair value

Two separate issues: motor finance commission vs insurance fair value

Let’s be clear about what is being muddled.

Motor finance commission (DCA) complaints generally concern the relationship between the lender and broker/dealer, and whether undisclosed commissions (and incentives to inflate interest rates) created unfair outcomes within the credit agreement.

GAP insurance fair value complaints concern whether the consumer paid a grossly inflated ‘premium’ compared to the net risk cost, with commission extraction throughout the chain (underwriter, administrators, distributors, retailers, lenders) leaving the consumer paying far more than the product can reasonably justify.

Yes, these can intersect when GAP is financed and rolled into the credit agreement. But intersection is not identity. A complaint can involve a finance agreement that is subject to DCA considerations and still be resolvable on the insurance fair value issue alone.

By repeatedly treating “financed GAP” as automatically caught in a motor-finance pause logic, FOS is revealing something deeply concerning. It cannot separate product analysis from credit mechanics.

Let’s be clear, the proposed redress scheme makes no reference to financed ancillary products, and the final rules won’t either.

A fair resolution is straightforward

A fair outcome can be achieved without FOS needing to solve every possible issue in the motor finance ecosystem.

Even if the finance agreement is subject to a DCA, FOS can still determine whether the GAP policy offered fair value and whether the consumer suffered loss as a result of paying an inflated premium as a result of the majority of the premium being commission.

In fact, financing makes the harm clearer, not harder:

• The consumer pays the ‘premium’ (which may include excessive commission).
• The consumer borrows to pay that ‘premium’.
• The consumer then pays interest on the borrowed amount, meaning they may pay interest on the commission element too.

That compounding effect matters. But it does not prevent redress. It simply means redress must be calculated properly.

The “underwriter cost vs consumer price” test

FOS keeps acting as though these cases require some impossible forensic reconstruction of every commission agreement in a chain. That is nonsense.

At the heart of fair value is a simple question:

What was the underwriter’s net cost (or net premium) compared to the total end price paid by the consumer?

That comparison speaks volumes. If the consumer price vastly exceeds the underwriter cost, the additional cost to the consumer is explained by distribution-chain margin and commission extraction. And where the premium is financed, the consumer will pay even more due to interest, thus turning an already questionable value proposition into something indefensible.

FOS does not need to become an actuarial lab to grasp this. It needs to apply common sense, basic product economics, and the regulatory principle that consumers should not be charged prices that deliver poor value relative to the benefits and risk cost.

If FOS wants a practical framework, here it is:

1. Identify what the consumer paid for GAP (including any amount added to finance).
2. Establish (or reasonably infer) the underwriter net cost / net premium for the policy.
3. Assess the scale of the difference, and whether it indicates a failure of fair value.
4. Account for the fact the consumer may have paid interest on the financed premium.
5. Provide redress that puts the consumer in the position had they not been sold the product.