As a result of ‘pressure’ to sell Gap Insurance and other insurance products, motor dealers often use a number of ‘tactical’ means to increase their policy sales to achieve the manufacturers insurance sales targets.
Why would a motor manufacturer set an ‘insurance sales’ target you may well ask ?
Motor manufacturers supplement their profits by setting up insurance schemes for the dealer network and are paid a commission for every policy sold by their dealer network. The income can be substantial. Take a franchise such as BMW for example. BMW have approximately 150 dealers in the UK and if every dealer sells 40 policies per month, that equates to 72,000 policy sales -and if their commission arrangement with the insurer is say, £15 per policy – that provides the manufacturer with over £1 million extra profit per year from one additional supplementary product offering. Ford and Vauxhall for example have double that number of dealers and therefore their revenue is also likely to be over £2 million pounds per year.
What does this mean to you as a consumer?
Profits of this proportion means manufacturers set some tough insurance sales targets and therefore there is a ‘pressure’ to sell applied to the dealers – and pressure to sell can lead to some poor practices that are not in the consumers interest or indeed fitting with the FCA principles.
One common tactic is to offer Free Gap Insurance when negotiating a sale with a buyer. What’s not to like about something that is free? Let’s be clear, the policy is not free to the dealer – they will have to pay the premium to the insurer on your behalf and it will be in forfeit of some of the discount that would have been available to you anyway. So, it’s not an act of kindness – it’s a means of selling an insurance you may not have otherwise purchased from them and it gives the perception of ‘good will’ to help ‘seal the deal’.
So, what is so wrong about free Gap Insurance?
Because so many parties receive a financial benefit when a policy is sold by a dealer, ie the manufacturer, the franchised dealer, the Sales Executive and the dealers Business Manager – the manufacturer will negotiate the lowest premium, regardless of quality of cover, to give the greatest opportunity for all parties to make a very healthy profit. Insurance is simple. An insurer can only reduce a premium when he is able to reduce the risk of a claim and reduce the payment in a claim – and this is achieved by setting what are known as ‘Limitations and Exclusions’ within the Terms and Conditions. Because this ‘free’ gift is coming to you at a cost to your dealer, they may choose an insufficient level or type of cover – simply to keep their costs down.
Therefore your ‘free’ dealer Gap Insurance policy could lead to disappointment and unexpected loss when you make a claim, making your ‘free’ Gap Insurance far less appealing than it was when it was ‘gifted’ to you.
Dealer policy’s are often very restrictive, lacking in choice and flexibility and normally negotiated by someone with very little or no knowledge about Gap Insurance. Before you accept a free Gap Insurance – invest 5 minutes of your time to talk to a Gap Insurance specialist – it could save you a great deal of money.
To speak to one of the most experienced Gap Insurance specialists in the UK without any sales pressure or obligation – call 01438 870615.