GAP Insurance: “Double-Dip” Commission, Sales Targets and the Contract Behind the Sale

Your Money Claim has obtained a commercial agreement between a major motor-finance broker, with a panel network of thousands of dealerships, and a major policy administrator. It reveals a combination of pricing arrangements, additional commission opportunities and restrictions on competing products that demands an explanation.

The agreement, dated 1st December 2015, indicates that the broker could determine its commission through the price charged to customers. It also provides an opportunity to receive additional underwriting profit commission, with eligibility linked to a minimum annual sales volume of 2,500, while restricting the broker from distributing competing or similar products.

In other words, the business could earn from the individual sale, use that sale to help maintain the volume required for an additional payment, and operate within an agreement that restricted its involvement with competing products.

We describe that as an opportunity to “double dip”. The immediate commission from selling the GAP product was one financial incentive. Access to a further underwriting bonus by hitting a sales volume target was another.

For the customer, the question should have been whether GAP insurance was worth buying and whether the particular policy met their requirements. The agreement reveals a separate set of commercial considerations: how much the seller could retain, how many policies it needed to sell and whether it would qualify for another payment.

The seller’s earnings depended on the price charged to the customer

Clause 5.1 is central to understanding the arrangement. It defines the broker’s commission as the amount charged to the customer above the sum payable to the administrator and the applicable Insurance Premium Tax.

The administrator determines the amount payable to it. The accompanying rate schedule reinforces that distinction by describing its prices as net amounts payable to the administrator, with tax applying separately.

This separates the supplier’s charge from the customer’s retail price. The broker’s remuneration comes from the difference.

Read together, those provisions provide a substantial indication that the broker could determine its commission through the price charged to the customer. This was not simply a clause specifying a fixed commission percentage to be paid by the supplier.

For the same underlying product and supplier charge, a higher retail price would leave a larger margin for the seller. The customer could end up paying more without receiving any additional insurance protection.

That is a direct conflict requiring explanation. The customer’s interest is in making an informed purchase at an appropriate price; the seller has a financial interest in the amount retained from that price.

The agreement does not expressly confer unlimited pricing discretion, but any suggestion that the seller could not determine its remuneration must confront the actual wording and identify the pricing restriction that prevented it from doing so.

Saying that the administrator “set the premium” would avoid the central distinction. Did it set the amount payable to the administrator, or the final amount charged to the customer? Who decided the difference, and what was the customer told?

The “double dip”: earn on the sale, then qualify for additional commission

The agreement goes further than providing commission on individual transactions.

Its GAP/RTI underwriting profit commission provisions give the broker an opportunity to receive 80% of a defined underwriting surplus, subject to the contractual calculations and conditions. To qualify for payment, the broker had to remain an active distributor selling a minimum of 2,500 policies per annum when payment became due.

The sales-volume condition was therefore attached to a further financial reward. It was not simply a forecast in a business plan.

A sale could generate an immediate commission and also contribute towards the volume needed to qualify for additional underwriting profit commission. That is the “double-dip” opportunity revealed by the agreement.

The distinction between a bonus threshold and an absolute obligation to sell is important, but it does not make the incentive disappear. The agreement did not require 2,500 sales regardless of customer need; it made maintaining the specified volume a condition of eligibility for additional remuneration.

A customer who decides not to buy GAP may be making entirely the right decision. Commercially, however, that decision does not contribute towards the distributor’s qualifying volume. The customer’s best outcome and the business’s financial objective can therefore point in opposite directions.

This is why the arrangement cannot be dismissed as an ordinary payment for arranging insurance. The commercial incentive extended beyond the individual transaction and into eligibility for a wider reward.

The timing adds to the concern. The minimum sales condition was tested when the bonus became payable, while the underwriting provisions also referred to expired policies and earlier account periods. On that wording, maintaining subsequent sales activity could affect eligibility for commission associated with an earlier book of business.

We want to know how that requirement translated into management expectations, sales targets, performance monitoring, staff incentives and customer conversations. What happened when a proper assessment suggested that a customer should not buy the product? Was declining a sale treated as a good customer outcome, or a missed commercial opportunity?

Those questions do not depend on proving that an individual salesperson personally received a bonus. The incentive existed at company level. Nor does the absence of an eventual payment establish that there was no conflict: an anticipated reward can influence commercial behaviour before it is paid.

Competing products were restricted by the same agreement

Clause 2.7 restricts the broker, during the agreement’s term, from being involved directly or indirectly in distributing, promoting or selling policies or products that compete with, or are similar to, those covered by the agreement.

This is another significant part of the commercial picture. The broker had financial incentives to sell the available product, while the agreement restricted its involvement with competing alternatives.

For customers, the questions are straightforward. Was the restricted offering explained? Did the customer understand the nature of the service being provided? What happened when the available policy did not match the customer’s requirements?

The customer might have needed a different policy, a different duration or no GAP insurance at all. None of those possibilities should have been subordinated to the product the business was contractually positioned and financially incentivised to sell.

Nearly seven pounds in every ten went to distribution commission

The concerns are supported by actual sales figures, not merely an interpretation of contractual wording.

In one complaint we are pursuing against the broker, the customer paid £329.75 for GAP insurance. The administrator confirmed that £229.42 was total distribution commission: approximately 69.6% of the customer’s payment.

That is most of what the customer paid.

The administrator explained that the commission reflected the commercial distribution arrangements prevailing at the time. That answers why the businesses allocated the money as they did. It does not answer whether the customer was treated fairly.

An arrangement does not become fair merely because it was commercially established. Nor does the fact that a customer agreed to the headline price establish that they understood the seller’s role in setting that price, the extent of distribution remuneration or the additional incentives behind the sale.

Was the customer’s need established, or was a sale secured?

The agreement’s rate schedule lists 36-month GAP products. In the complaint under examination, the customer’s finance agreement ran for 54 months, while the GAP cover lasted only 36 months. The broker was involved in arranging the longer finance commitment.

That left an 18-month difference between the contractual finance term and the insurance term. That needs an explanation grounded in the customer’s circumstances, and evidence that the customer understood the risk and agreed for the policy to only cover part of the finance term.

This is precisely why the remuneration arrangements matter. A business operating with a restricted product range, an immediate sales commission and a volume condition for additional commission must be able to demonstrate that the customer’s requirements drove the sale, not that the sales conversation was shaped around the product available.

The existence of a policy proves that insurance was put in place. It does not prove that the sale was fair, the duration was appropriate or the customer would have bought it after a proper explanation.

The initial response was to invoke time limits, not to investigate the sale

Before these issues received substantive examination, the broker attempted to bring the complaint to an end on time-limit grounds.

This is a path well trodden by the industry.

We challenged that rejection, and again defeated it.

Knowing that insurance was purchased is not the same as knowing there was a problem with its sale. It certainly does not, by itself, establish awareness of the commercial arrangements between the businesses: the retained-margin mechanism, the competing-product restriction or the volume condition attached to additional remuneration.

The complaint is currently with an Ombudsman, and our submissions have been made.

The contract must be examined as a whole

An apparent ability to determine commission through the retail price.

An opportunity to receive additional underwriting profit commission.

A minimum sales condition.

A restriction on competing products.

The potential consumer harm is clear: paying more because of the seller’s commission, purchasing insurance without understanding the seller’s financial interest, accepting a policy that does not fully meet the intended period of protection, or buying a product that a properly informed customer would have declined.

Those are risks arising from the documented structure. Determining how they affected particular customers requires the pricing instructions, remuneration breakdowns, sales records, bonus calculations and evidence of what was actually explained.

“The customer could have said no” is not a sufficient answer where the complaint is that material information was missing from the decision. Nor is “the policy could have paid a claim” an answer to whether the customer should have been sold it on those terms.

The agreement is being forwarded to the FCA

The agreement is being forwarded to the Financial Conduct Authority as further documentary evidence supporting our concerns about GAP insurance mis-selling and consumer harm.

The FCA is already in receipt of our substantive letter, sent under cover of a serving Member of Parliament. This agreement adds the contractual detail behind the concerns: how remuneration was structured, how additional payments were linked to sales volume and how involvement with competing products was restricted.

We expect a substantive response addressing the complete arrangement and its consequences for customers, not simply an acknowledgment that businesses are entitled to earn commission.

The FCA has our warning. The agreement is being supplied as evidence. The question now is what the regulator will do about it.