Car dealers selling insurance products at ‘rip-off prices’
Consumer group Which? found that Guaranteed Asset Protection – or GAP – insurance bought from a dealership was up to 278 per cent more expensive than buying it directly from an insurer.
Gap insurance pays out the difference between the original cost of a vehicle and what an insurer will cover if it is stolen or written off, meaning the driver isn’t left out of pocket when the value of the car decreases over time.
In one example, the cost of buying Gap insurance for a Ford Fiesta from a dealership was £499, but only £132 on average when purchased directly from an insurance company.
Even the smallest difference was 102 per cent. In this instance, Gap insurance for a Honda CR-V SUV cost £415 from a dealership, but just £205 on average from an insurer.
Which? also found that cosmetic and dent insurance was almost 60 per cent cheaper to buy directly than from a car dealership, and alloy wheel and tyre insurance was up to 26 per cent cheaper.
Gap insurance came under scrutiny from the Financial Conduct Authority (FCA) earlier this year after it found dealerships were receiving high and potentially excessive levels of commission.
A report by the FCA found the average commission taken by car dealerships was 71 per cent.
It also found examples of Gap products being sold to ineligible customers.
The FCA has since warned insurers not to allow dealerships to receive commission which bears no reasonable relationship to the costs or workload to distribute the product.
Jenny Ross, editor of Which? Money, said: “We’re really concerned that car dealers are continuing to pocket huge commission fees from selling insurance products at rip-off prices, despite recent scrutiny from the financial regulator.
“The FCA needs to keep a close eye on these practices and be ready to step in with strong action if consumers face mis-selling or unreasonable charges for these products.”