The Financial Conduct Authority (FCA) has issued a warning to UK insurers after a report showed some insurance products, particularly motor add-ons, are failing consumers.

Claims costs as a proportion of premium ranged from 4% for Guaranteed Asset Protection (GAP) to 65% for motor, with the median in that range at 35%, according to the latest Fair Measures Data report covering last year. 

GAP insurance is an add-on to motor insurance to cover the difference between a vehicle’s purchase price and its current market value. 

The report also found examples of some firms paying out up to 70% of the value of insurance premiums in commission to parties in the distribution chain such as motor dealerships. 

“We are particularly concerned that some distribution arrangements we saw do not clearly demonstrate how fair value is being delivered,” the FCA says. 

“We have seen what would appear to be high commission levels, and it was not clear how these products were being assessed to show they were consistent with fair value.” 

FCA has told firms manufacturing GAP insurance products they must take immediate action to prove customers are getting a fair deal, or it will intervene. Affected firms have been given a three-month ultimatum to set out to FCA how they intend to address the issue. 

“Customers should be reassured that we’re in their corner and are taking action where we see poor value being provided,” FCA Director of Insurance Matt Brewis said. 

“If the firms are unable to prove they’re providing fair value to their customers, they should expect further action from the regulator.” 

The larger retail insurance products recorded claims costs as a proportion of premiums written of 50% for home insurance, 32% for travel (annual European) and 22% for payment protection (credit card, store cards and personal loans). 

Click here for the report.