‘Rip off products’ – Investigation finds that car dealers charge too much for insurance products

by Sep 26, 2019Blog, News

An investigation carried out by consumer group Which? has revealed that a lot of motor dealerships are charging excessively high prices to customers for insurance add-ons.

Some dealers were charging up to 278% more than insurers for products such as GAP insurance and additional cover for things such as scratches or tyre damage.

The research has found that drivers are being charged hundreds of pounds more for these products when they buy them from a dealer as opposed to from the insurers directly. It has been suggested that this is due to the large commission rates that are being pocketed by dealerships.

During their analysis it was discovered that the product with the largest difference between what customers were paying through dealers compared to insurers was GAP insurance. This is Guaranteed Asset Protection and covers the owner for the difference between a car’s value and the outstanding finance required if it is stolen or written off.

“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.”

Jenny Ross – Which? Money editor

In fact, when it comes to GAP cover, even the most reasonably priced dealership in the study was still charging twice the price of the insurance company. The worst, as mentioned above, was charging 278% more than insurers, which was £367 more than the insurance companies were charging.

To carry out the research, Which? analysed the cost of buying these products from four car dealerships selling Ford, Honda, Lexus and Toyota cars. They then compared this to the costs of purchasing the same products direct from insurers. The insurers involved were ala.co.uk, car2cover.co.uk, click4gap.co.uk, directgap.co.uk, gapinsurance.co.uk, shortfall.co.uk and totallossgap.co.uk.

As well as GAP cover, Which? also found that cosmetic and dent insurance was almost 60% cheaper when purchased from an insurer compared to a dealership. Alloy wheel and tyre insurance was also cheaper when bought direct, costing up to 26% more from a dealership.

This research has come after an investigation was carried out by the Financial Conduct Authority (FCA) earlier this year. The FCA’s investigation into GAP policies revealed that a number of dealers were receiving very high, and potentially excessive, levels of commission.

Their investigation also found that some dealers were selling products to ineligible customers. Some businesses were discovered to have pushed the insurance through distributors when some, or all of the vehicles being sold were second-hand, thus making the product unnecessary or of little value.

The FCA went on to warn insurers against allowing dealerships to receive commission “which bears no reasonable relationship to the costs or workload to distribute the product”.

Jenny Ross, Which? Money editor, 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.”

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