80 per cent of UK insurers selling Guaranteed Asset Protection (GAP) have agreed to pause sales of the product after the Financial Conduct Authority (FCA) raised concerns about its fairness.

GAP insurance, typically sold alongside car finance, covers the difference between a vehicle’s purchase price or outstanding finance and its current market value, in the event it is written off before finance has been repaid.

Firms said they would halt sales following a request from the financial regulator, which said it was concerned that GAP is failing to provide a fair deal for consumers.

The move comes after the watchdog found that only six per cent of the amount customers pay in premiums for GAP insurance is paid out in claims.

The FCA has also seen examples of some firms paying out 70 per cent of the value of insurance premiums in commission to parties involved in selling GAP policies.

In September, the organisation wrote to firms asking them to take immediate action to prove that customers are getting a fair deal.

After assessing responses to the request, the FCA said it was not satisfied, which ultimately has resulted in the total pause of sales.

“GAP insurance can provide a useful service to customers, but in its current form it does not offer fair value and we want to see improvements,” said Sheldon Mills, executive director of consumers and competition, FCA. “We will continue to work closely with firms as we carry out further engagement to resolve these issues and ensure customers are getting fair value products that meet their needs.”

The regulator is now planning to carry out a second tranche of engagement with the rest of the GAP market, with the "aim of improving the value of the product across all firms".

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