Why GAP Insurance Paid Back As Little As 7 Percent of What Drivers Spent

For years, drivers who bought GAP insurance alongside a new car paid premiums where as little as 7p in every £1 came back to them in claims. New data published by the Financial Conduct Authority in July this year shows just how far the product had drifted from anything resembling fair value, and how much work is still needed before it can be trusted again.

GAP insurance, short for Guaranteed Asset Protection, covers the gap between what a car is worth and what a driver still owes on finance if the car is written off or stolen. It is most often sold at the point of sale in a car dealership, bundled alongside the finance agreement itself.

What the Regulator Found

The FCA’s general insurance value measures data, published on 21 July 2026 and covering the whole of 2025, sets out the numbers plainly. Before the regulator intervened, the proportion of GAP insurance premiums paid back to customers in claims sat at 7% in 2022 and 22% in 2023. In separate findings that informed the FCA’s original action, the regulator identified some firms paying out as little as 6% of premiums in claims while handing over as much as 70% of the value of those premiums in commission to the dealers and brokers who sold the policies.

Put plainly, a driver paying £300 for a GAP policy could see £210 of it go straight to the salesperson who sold it, while the insurer set aside a fraction of the rest to cover actual claims. Multiple firms accounting for 80% of the GAP insurance market agreed to pause sales altogether after the FCA raised these fair value concerns.

How GAP Insurance Actually Works

New cars lose value fast. A £30,000 car financed on a five-year loan can be worth thousands of pounds less than the outstanding balance within the first two years, especially if the buyer put down a small deposit. If that car is written off or stolen and the standard motor insurance payout only covers its current market value, the driver is left owing the finance company the difference out of their own pocket, on top of losing the car itself.

GAP insurance is meant to close that gap by paying out the difference between the insurer’s settlement and what the driver still owes. In theory it is a useful, low-cost protection for anyone financing a car. In practice, the FCA found the product had become a high-margin add-on where the commission paid to the person selling it, often the same salesperson arranging the car finance, dwarfed the value actually returned to customers through claims.

A Fix That Overcorrected, Then Settled

When GAP insurers paused sales and restructured their products, the market swung hard in the other direction. Written premiums fell sharply in 2024, but insurers were still settling claims from policies sold before the changes. That mismatch pushed the claims-to-premium ratio above 100% in 2024, meaning insurers paid out more in claims than they collected in new premiums that year.

By 2025, the market had settled closer to balance. The FCA’s newly published data shows the claims-to-premium ratio for standalone GAP insurance fell to 53% in 2025, a level the regulator itself describes as still needing to “be used with caution” while it continues to assess whether the product now delivers fair value. Firms that resumed selling GAP insurance did so with materially lower commission rates, addressing the single biggest driver of the original problem.

Why This Still Affects Drivers Right Now

Two groups of drivers are affected today. The first are those who bought GAP insurance at any point between 2007 and 2024, when the worst of the value problems applied. Many of these policies were sold as an add-on in a rushed finance conversation at a car dealership, often without being given time to compare standalone alternatives or understand what proportion of their premium was commission. These drivers could be entitled to complain and claim compensation.

The second group are drivers taking out GAP insurance now. The product is improving, but the FCA’s own caution about the reliability of the 2025 figures means it is still not possible to say with confidence that every GAP policy on sale today offers fair value. The regulator continues to consult in 2026 on simplifying GAP insurance rules and improving disclosure, which signals the work is not finished.

The FCA has also flagged the wider context these figures sit within. Its data covers only firms with more than £400,000 in written retail premiums and over 3,000 policies in force, and the regulator itself warns that comparisons between years should be made with care, as firms continue to correct and resubmit figures after publication. That caveat is worth remembering for anyone tempted to treat the 53% payout ratio as a settled fact rather than a snapshot still catching up with a product the FCA effectively rebuilt from the ground up in under two years.

How to Fight Back

If you bought GAP insurance through a car dealership or finance provider, above all before 2024, check your paperwork for the commission rate disclosed at the point of sale. If no commission figure was disclosed, or if you were not told about cheaper standalone GAP policies available outside the dealership, you could have grounds for a mis-selling complaint.

Start by complaining directly to the firm that sold you the policy. Set out what you were told at the point of sale, whether you were given time to weigh up alternatives, and ask for a breakdown of how much of your premium went to commission. Firms have eight weeks to respond to a formal complaint.

If you are not satisfied with the response, or do not receive one within eight weeks, escalate the complaint to the Financial Ombudsman Service, which handles GAP insurance disputes free of charge. The Ombudsman can order compensation if it finds the product was mis-sold or the commission structure meant you did not receive fair value for what you paid.

If you are shopping for GAP insurance now, buy a standalone policy from an independent insurer rather than one offered at the dealership finance desk. Standalone GAP policies are typically far cheaper than dealer-sold equivalents covering the same car: they carry lower commission built into the price. Compare at least two standalone quotes before signing any finance paperwork, and ask the dealer directly what percentage of the premium they receive in commission. Firms are required to be able to answer this question under the FCA’s Consumer Duty rules.

Finally, keep any GAP insurance paperwork from the past two decades, whether or not you have sold the car or paid off the finance. The FCA’s ongoing scrutiny of the product means further redress schemes or complaint windows are a realistic possibility, and having the original documentation ready will make any future claim far easier to pursue.

The Sales Pattern the FCA Was Reacting To

GAP insurance rarely appears on its own. It is usually offered near the end of a finance meeting at a car dealership, after the driver has already agreed a price for the car and the monthly repayment figure, at the point where attention has moved on and add-ons get waved through with a nod. The FCA’s supervisory work found that structure was central to why the product performed so poorly for customers: high commission built into a policy sold at a moment when a buyer is least likely to shop around or push back.

Dealership finance staff are typically paid in part on the products they attach to a sale, GAP insurance among them. That incentive does not make every seller dishonest, but it explains why standalone GAP policies, bought independently and compared against alternatives, have consistently cost a fraction of the dealer-sold equivalent covering an identical car. The FCA’s Consumer Duty rules, which took effect in 2023, now require firms to be able to show a product offers fair value at the point it is sold, not just in a report published years later.

Sources:

• FCA: General insurance value measures data 2025
• FCA: GAP insurers agree to suspend sales following FCA concerns over fair value
• FCA: Firms to recommence GAP insurance sales following FCA action