FCA Intervention on GAP Sales Didn’t Pan Out

Remember the FCA intervention and how we thought it would affect GAP sales? Well, it didn’t really live up to the hype. Here’s a breakdown of what really happened.

Before the intervention, it was estimated that add-on GAP sales at dealerships would go down by 32.5 percent. Unfortunately, the decline didn’t even reach 30%. The intervention barely caused them to come down to between 16% and 23%.

Similarly, before the intervention, it was believed that the share of standalone GAP sold outside dealerships will skyrocket to 40%. It only increased to 8% from the original 6%. Furthermore, we thought that add-on prices would be about 17% lower after the intervention, but it’s just 2% to 3% lower.

The FCA also said that due to their intervention, consumer benefits reached about £26m. But if we factor in the cost of implementing the intervention, it would be between £5 and £8m paid at once and subsequent costs of £1m annually.

And then the FCA finally announced that the intervention was not as pronounced as they thought it would be. Majorly, the findings they gathered were consistent with the contemporary academic literature. This literature states that demand-side interventions, although effective, can have very modest implications.

This is, perhaps, the reason for the almost insignificant impact the FCA intervention had on consumer gains.

NFDA confirmed that the probe was the reason behind the reduction in GAP sales. In a statement issued by the director, Sue Robinson, it was gathered that instead of buying online, consumers would rather buy GAP from dealers. The four-day waiting period has also caused customers to avoid shopping for GAP.

One encouraging thing, however, is that the FCA has acknowledged how important it is to sell add-on insurance at point-of-sale since it makes the customer be aware of the product.