What is New in the gap insurance market for 2012?
What has the gap insurance market done to keep up to date with us and our expectations?
What do we expect the gap insurance market to do in the future?
If you have bought a car from a motor dealer in the last 10 years then it is highly likely that you will have been offered a form a Gap Insurance as part of the sale. This sort of insurance comes as part of an arsenal of after sale accessories that a salesman will offer to provide, others would include paint protection, tyre insurance, mud flaps, mats and tow bars. Of course all of these come at a price, and is often the way, the motor dealer price is far higher than you can find elsewhere.
Has this always been the case in the world of Gap Insurance and what can the gap insurance market – place do?
Actually probably not, you see the world of the Gap Insurance market used to be quite exclusive to the motor dealer. Indeed they would do little to persuade you this may have changed in 2012, even though there are a range of independent specialist providers who can provide products at a fraction of the price.
Traditionally the motor dealer would offer a 3 year Gap Insurance product, in the Return to Invoice style (arguably less comprehensive than VRI) for around £350-£400. This price has been fairly standard for the last decade. However, as was highlighted in the Which report in 2012, Gap Insurance can be found for perhaps 25% of that price if you shop around.
Why are motor dealers so expensive when it comes to Gap cover?
Well they do have some things counting against them:
Tax – When you buy Gap Insurance from a motor dealer they must charge 20% Insurance Premium Tax, buy it independently then it is only 6%
Volume – A motor dealer can only sell a Gap product to one of its customers. This means they will only provide a small number of policies a year. Hardly a great bargaining tool when it comes to discounted supply rates from insurers! Independent brokers can sell products to anyone, and will sell thousands of policies a year. This means they can negotiate strong supply deals with underwriters and pace savings onto customers
Commission – Ok, everyone works for a price, but think how many people you see when you buy a car. The salesman, the business manager, possibly a sales manager. These are all wages in the ‘food chain’, and sales of ‘add on’ products are used to generate commission for salaries. Remember that the dealer will only sell a very small number of gap policies a year, so that means they may need to build even more commission in too!
Lets break down a Gap Insurance premium and see just why the price difference can be so drastic.Lets assume even that the dealer and the insurance broker get charged the same supply rate from the insurer (which is highly unlikely) and lets say this is £70.
Compare Dealer Premium breakdown Insurance broker premium breakdown
Supply £70 £70
IPT 20% 6%
Commission salesman £50 broker £40
plus business manager £50
plus dealership £100
Premium Sale Price £324 £116.60
So that is the same product, same supply price, but different profit requirements and tax rates giving a difference of £207.40!!
The truth is that the difference is quite often much more than is illustrated above, but you can see just why the dealer can be so much more expensive than the insurance broker for the same product.
The Gap Insurance market has changed, and in 2012 it is certainly the case that buying Gap Insurance from your motor dealer instead of from an insurance broker can seriously damage your wealth.