GAP Insurance Is the Next Mis-Selling Scandal

Financial scandals are almost never recognised at the moment they begin, thanks in no small part to the historical poor performance by regulators. Instead, they are recognised years later, after consumers have paid the price, firms have banked the profits, the evidence has been buried in archived files and the regulator is finally forced to acknowledge that what it dismissed as a collection of isolated complaints was, in fact, a business model.

GAP insurance has now reached that point.

For well over two years, we have been pulling apart complaint files, Demands & Needs statements, underwriting figures, commission chains, administrator records and lender spreadsheets. What has emerged is not one defective policy, one rogue dealership or one unfortunate customer experience. The same features appear repeatedly… an expensive add-on sold alongside motor finance, grotesque undisclosed remuneration, financial rewards for increasing the price, inadequate suitability assessments, premiums added to finance agreements and interest then charged on top.

This is not a prediction about what might happen one day.

The scandal is already here.

PPI ended, but the appetite for its income did not

When the PPI scandal destroyed one of the most lucrative add-on insurance income streams in financial services, the commercial appetite behind it did not simply disappear. Lenders, brokers and motor retailers did not suddenly lose their desire for high-margin ancillary products. They needed another product capable of generating substantial income without the customer properly understanding the economics of the transaction.

GAP insurance became that replacement.

No coordinated conspiracy was required. The incentives did the work. GAP had everything the industry needed. It was an insurance product that could be sold during another, much larger transaction; the customer was concentrating on the vehicle, the deposit and the monthly finance payment; the underlying cost of the policy was hidden; and the premium could often be added to the finance agreement.

The customer saw one figure. Behind that figure sat an underwriting premium, administration charges, distributor remuneration, dealership commission, lender profit and, in many cases, several years of finance interest.

The three letter abbrevation changed. The business model did not.

GAP insurance can, of course, be useful in the right circumstances. It can protect a consumer where a vehicle is stolen or written off and the motor insurer’s payment leaves a genuine financial shortfall. But that does not answer the mis-selling allegation. PPI could also be useful in appropriate circumstances. The scandal arose because it was too often sold for the benefit of the seller rather than because it met the customer’s actual needs.

That is precisely the same pattern within GAP.

The economics are grotesque

The figures we have obtained are not merely high. They are so extreme that most consumers would struggle to believe them had they not been disclosed in black and white.

In one Motorpoint case, the gross underwriting premium was just £57, yet the customer was charged £429. That left £372 sitting above the cost attributed to underwriting the policy, equivalent to 86.7% of the amount paid by the consumer. Only 13.3% remained attributable to the gross underwriting premium.

Read: The Grotesque GAP Commission Award Has a New Leader

Advantage Finance’s own spreadsheet provided an even broader picture. Across the data it supplied, the average amount attributed to the underwriter’s risk and the separate Insurance Premium Tax element was £189.09. The average price charged to the customer was £717.14, before any finance interest was added. The average difference was £528.05 per policy, described by Advantage Finance as “GAP profit”, with its data showing an average margin of 73.4%.

Read: Advantage Finance’s Own GAP Spreadsheet Exposes a 73.4% Profit Margin Before Interest

In another case, Group 1 Retail’s slogan of “Integrity – Transparency – Professionalism – Respect” disintegrated when chain commission totaling 73.6% was proven. Despite this, the dealership sought to reject the complaint, which was subsequently escalated to the FInancial Ombudsman Service.

Read: Group 1 Retail case with 73.6% chain commission

As the layers of the scandal emerge, we see lenders and dealerships attempting to refuse to disclose details of chain commission, resulting in multiple reports of misconduct to the regulator.

Firms may debate whether the money should be called commission, profit, margin, markup or remuneration. That argument is largely irrelevant to the consumer.

The important question is much simpler, how much of the customer’s payment purchased meaningful insurance cover, and how much was retained by the businesses involved in selling and financing it?

These levels of undisclosed commission, profit margin, call it what you will, inevitably contaminated the sales culture.

Plevin should have ended this argument

The industry has already been warned by the Supreme Court about undisclosed commission within add-on insurance.

In Plevin v Paragon Personal Finance Ltd, 71.8% of the customer’s PPI premium was taken in commission before the balance reached the insurer. The amount and recipients of that commission were not disclosed. The Supreme Court concluded that leaving Mrs Plevin unaware of such an extraordinary level of commission made the debtor-creditor relationship unfair.

Read the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd

The Court’s warning could hardly have been clearer:

“At some point commissions may become so large that the relationship cannot be regarded as fair if the customer is kept in ignorance.”

Plevin established an obvious and important principle… when so much of an insurance premium is swallowed by undisclosed remuneration that a reasonable customer would question whether the product represented value for money, non-disclosure can be central to an unfair relationship.

An astonishing number of the GAP figures we have uncovered exceed the 71.8% commission seen in Plevin when measured against the amount paid by the consumer.

Customers were not told that the overwhelming majority of their payment might never reach the underwriting element of the product. They were not invited to consider whether a policy carrying an 86.7% difference between the retail price and gross underwriting premium represented value. They were shown a single price while the businesses involved knew how that price had been divided.

The principle established by Plevin did not cease to matter merely because the insurance product was renamed.

We have found discretionary commission inside GAP

The similarities with motor finance go further than excessive remuneration.

We have obtained documentary evidence from a GAP product administrator explaining a historic pricing structure in which the underwriter established the net price, other parties added their remuneration and the dealership was then permitted to determine its own commission within an agreed cap.

In substance, the person selling the policy had control over an element of the price that directly affected how much they earned. The more the customer was charged, the more the seller could retain. We submitted that evidence to the FCA and called for a proper investigation into historic GAP sales.

Read: Discretionary Commission in GAP Insurance – Evidence Submitted to the FCA

The mechanism is not identical in every legal or technical respect to the interest-rate-linked discretionary commission arrangements used in motor finance. The conflict, however, is painfully familiar.

Under motor finance DCAs, a dealership could increase the customer’s interest rate and receive more commission as a result. The FCA eventually banned those arrangements from 28th January 2021 because they created an incentive for brokers to increase consumers’ finance costs.

Read the FCA policy statement on motor finance discretionary commission models

Within the GAP structure we uncovered, the dealer could influence the price of the insurance product and thereby influence its own remuneration. Once again, the person supposedly helping the customer select an appropriate product had a personal financial interest in making that product more expensive.

The 2025 Supreme Court motor finance judgment also confirmed that commission size cannot be considered in isolation from non-disclosure and the wider commercial relationship. In the Johnson transaction, the commission represented 26% of the credit advanced and 55% of the total charge for credit. The Court found the relationship unfair, identifying the size of the commission, its non-disclosure and the concealment of the commercial tie between the dealership and lender as particularly important factors.

Read the Supreme Court motor finance judgment

The Supreme Court confirmed that hidden remuneration and hidden commercial incentives are capable of going directly to the fairness of the transaction.

That is precisely why the GAP evidence cannot be dismissed as a mere pricing complaint.

Some customers may have been charged twice by the same conflict

The position becomes even uglier where the GAP premium was added to a motor finance agreement.

A dealership could first earn additional remuneration by increasing the retail price of the GAP policy. The inflated premium could then be added to the amount borrowed, allowing the lender to charge interest on the policy, the administration costs and the commission or margin embedded within it.

Where the accompanying finance agreement also operated under a motor finance DCA, the customer may have suffered twice; once through discretion over the GAP price, and again through discretion over the finance rate charged on the agreement that funded it.

The consumer was therefore not merely borrowing money to buy insurance. They were borrowing money to pay the sales chain’s remuneration and then paying interest on that remuneration for several years. In affected cases, the same transaction may have exposed the customer to discretionary commission at two separate stages.

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

It is difficult to imagine a clearer example of a sales structure placing profit ahead of consumer value.

Suitability became an obstacle to the sale, rather than a reason to stop it

Commission explains why GAP was so profitable. The complaint files explain what that profitability did to the quality of the sales.

We have seen a dealership’s own Demands & Needs statement record that the customer answered “No” when asked whether he saw a need for the GAP product. The answer was not ambiguous, incomplete or open to interpretation. It was “No”.

The policy was sold anyway.

Read: When “No” Apparently Means Sell It Anyway

We have seen GAP cover lasting 36 months attached to a finance agreement lasting 48 months, leaving the customer without GAP protection during the final year of the borrowing. We have seen no evidence that the seller considered whether the customer’s comprehensive motor insurance already included new-for-old replacement cover, which could remove or substantially reduce the benefit of GAP during the relevant period.

Read: GAP Insurance Mis-Selling Complaint

Across other cases, we have identified exclusions, policy limits, vehicle circumstances and finance positions that call into question whether the policy could ever have produced a meaningful financial benefit for the customer. In some instances, there appears to have been no realistic shortfall for the product to cover. In others, the sales documentation seems to have been treated as an administrative exercise carried out to support a predetermined sale.

A proper process should identify whether the customer faces a relevant risk, whether existing insurance already addresses that risk, whether the duration and limits of the GAP cover match the customer’s circumstances and whether the likely benefit justifies the cost.

It should not begin with the assumption that the policy will be sold and then search for paperwork capable of justifying the decision afterwards.

The fact that a policy technically existed does not prove that the customer needed it. The possibility of inventing a hypothetical situation in which it might have paid something does not prove that it represented value. Virtually any insurance product can be defended after the event by imagining a scenario in which cover might have been useful.

The FCA’s own figures show that the market was broken

The FCA cannot credibly claim that concerns about GAP insurance appeared without warning.

In February 2024, the regulator announced that firms accounting for around 80% of the GAP market had agreed to pause sales after failing to demonstrate that their products offered fair value. The FCA’s own data showed that only 6% of the amount paid by customers in premiums was being paid out in claims, while it had seen examples of firms paying as much as 70% of premiums in commission to parties involved in selling the policies.

Read the FCA announcement on GAP insurance fair value

The regulator also acknowledged that the warning signs stretched much further back. Its 2014 insurance add-ons market study found that, between 2008 and 2012, only around 10% of GAP premiums were paid out in claims on average.

This was not a previously healthy market that suddenly developed a minor Consumer Duty problem in 2024. The poor-value indicators had existed for years.

The FCA’s intervention may have improved the value of products offered after sales resumed, but prospective changes do not resolve historic misconduct. Reducing commission now does not compensate someone who previously paid hundreds of pounds for an unsuitable policy carrying an undisclosed commission or margin of 70%, 80% or more.

Nor does allowing a revised product back onto the market provide a clean bill of health for the way earlier policies were sold.

The historic questions remain unanswered. How many customers were sold policies they did not need? How many received cover that duplicated existing protection? How many policy terms failed to match the finance period? How many premiums incorporated remuneration that would have caused a reasonable customer to walk away had it been disclosed? How many dealers were allowed to determine their own reward by increasing the price? How many lenders then charged interest on the resulting markup?

A fair-value intervention aimed at future sales is not a substitute for answering those questions.

FOS cannot assess fairness without obtaining the figures

The Financial Ombudsman Service has also been placed on notice.

We have provided evidence of extraordinary commission levels, defective suitability assessments and discretionary commission structures. Yet some GAP complaints have been considered without the full remuneration chain first being obtained.

In one case, a complaint was partially upheld even though the investigator had not secured the information needed to establish how the customer’s premium had been divided between the underwriter, administrator, distributor and dealership. In another, FOS acknowledged that it did not know the full commission figure while still attempting to reach conclusions about fairness and value.

Read: When a GAP Complaint Is Only Partially Upheld Before the Key Evidence Has Even Been Obtained

That approach is unsustainable, because FOS cannot determine whether a product represented fair value without knowing where the customer’s money went. It cannot properly assess the strength of the sales incentive without knowing what the seller earned. It cannot decide whether remuneration was proportionate while allowing businesses to withhold the very figures required to perform that assessment.

The regulator has been warned again

We have previously reported that concerns about motor finance commission were raised with the FCA by a whistleblower in 2016. The motor finance DCA ban did not take effect until 2021. Five years passed between the warning and the removal of the commission model.

Read: The FCA’s Letter to the Treasury Committee

The same delay cannot be allowed to happen again.

The FCA has received our evidence relating to discretionary commission within GAP. The Financial Ombudsman Service has received the evidence and the complaints. Members of Parliament have been alerted to the findings and the developing pattern of systemic harm.

Read: GAP Insurance Claims Are Gathering Pace

Nobody will be able to claim that the problem was invisible.

Nobody will be able to claim that the commission levels were unknown.

Nobody will be able to claim that the suitability failures had not been identified.

And nobody will be able to claim that the similarities with PPI and motor finance had not been explained.

The warnings have been delivered.

This is not isolated mis-selling. It is a culture

The evidence we are uncovering points to something much more serious than a collection of individual sales failures. It points to a culture in which the profitability of GAP insurance appears to have been allowed to take precedence over transparency, suitability and the interests of the customer.

If, as we suspect, the extraordinary undisclosed commission and remuneration levels we have uncovered are replicated across wider books of historic GAP business, then the issue is not whether a handful of individual policies were mis-sold. The question becomes whether the very structure through which GAP insurance was priced, distributed and sold was fundamentally infected by the same conflict of interest.

Large undisclosed remuneration. Complex commission chains hidden behind a single retail price. Dealerships given discretion capable of increasing their own reward. Policies sold despite obvious suitability concerns. Premiums added to finance agreements so that customers paid interest on top. Demands & Needs documentation that appears, in some cases, to have become little more than an administrative hurdle on the way to completing a profitable sale.

These characteristics all point in the same direction.

They point to a sales culture built around extracting maximum revenue from the customer while revealing as little as possible about where their money was actually going.

That is what makes the parallels with PPI so difficult to ignore. PPI became a national scandal because enormous financial incentives distorted the way the product was sold. The product became extraordinarily profitable, the sales culture followed the money, and customer need became secondary to completing the transaction.

Motor finance commission subsequently exposed the same problem in another form. Give the seller a financial incentive that increases when the customer pays more, hide or inadequately disclose that incentive, and it should surprise absolutely nobody when the interests of the seller and the customer begin travelling in opposite directions.

GAP insurance is exposing that culture all over again.

Perhaps the most troubling feature is the resistance encountered when the figures are requested. Customers were not told the true economics of these products when they bought them, and even now we repeatedly encounter obstacles when establishing precisely how their premiums were divided and who received what.

Secrecy matters because the commission is not some peripheral detail. It goes directly to the motivation behind the sale. If a dealership could retain the majority of what the customer paid, that financial incentive cannot simply be separated from the question of why the product was recommended in the first place.

This is the culture that regulators must investigate… profit driving the sale, suitability becoming secondary, remuneration remaining hidden, and disclosure only emerging when somebody refuses to stop asking questions.

The warning signs are appearing across lenders, dealerships, administrators and complaint files. If the same remuneration structures are found across the wider historic GAP market, the scale of what follows will be enormous.

Profit first. Customer need second. Disclosure only when forced. That is not a handful of bad sales. That is a culture.

This is it

GAP insurance is not waiting to become the next mis-selling scandal. The scandal has already arrived.

The evidence is sitting in lender spreadsheets, underwriting breakdowns, administrator admissions, dealership records, Demands & Needs statements and complaint files. The FCA’s own figures confirm that the market was producing extraordinarily poor value. The commission levels we have uncovered meet and, in many cases, surpass the figure considered by the Supreme Court in Plevin. The discretionary pricing structures reproduce the same fundamental conflict that poisoned motor finance.

Dealerships and lenders may call the money profit rather than commission. The FCA may describe the matter as a fair-value concern. FOS may attempt to deal with each complaint as though it exists in isolation.

Consumers will see that they paid hundreds of pounds for insurance. A remarkably small proportion of that money was connected to underwriting the risk. The remainder was distributed through a sales chain they were not told about. In many cases, nobody appears to have properly established whether they needed the policy, whether it matched their circumstances or whether it could provide any meaningful financial benefit.

After PPI, the product changed. The incentives did not.

After motor finance, the commission mechanism changed. The conflict did not.

The FCA has the evidence. FOS has the complaints. Members of Parliament have been warned. The firms involved have the records.

No one can now say they did not know.

This is it. GAP insurance is the next mis-selling scandal.