GAP insurance, alloy, tyre and cosmetic cover: were your car finance add-ons also mis-sold?

The Financial Conduct Authority (FCA) estimates that approximately 12.1 million motor finance agreements, 37% of those entered into between 6 April 2007 and 1 November 2024, are eligible for compensation under its redress scheme.

Although the scale of alleged misconduct in the motor finance sector is clear, for many motorists, the mis-selling did not end with the agreement for the vehicle itself. Guaranteed Asset Protection (GAP) insurance, alloy wheel cover, tyre insurance and cosmetic or paintwork policies were routinely sold alongside car finance, and each of these products carried the same potential for undisclosed commission to be built into the price.

Might your GAP insurance also have been mis-sold?

GAP insurance is commonly offered when taking out car finance. It is designed to cover the difference between a motor insurance payout and any outstanding finance if the vehicle is written off or stolen.

Car dealers, acting as brokers, may not only have presented GAP insurance as an essential add-on, and one that was better purchased from the dealership rather than as a standalone product, but may also have benefitted from excessive and undisclosed commissions added to the premium itself. In some cases, the commission may have accounted for most of the price paid.

The FCA has previously identified commissions of up to 70% on GAP insurance

In September 2023, the FCA published its general insurance value measures data 2022, highlighting concerns about whether GAP insurance was providing fair value in line with its product governance requirements.

In an accompanying press release, the regulator said it had written to GAP insurance providers about these issues and disclosed that it had ‘seen 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’. The FCA also found that only 6% of the amount customers paid in premiums for GAP insurance was being paid out to them in claims.

80% of GAP insurance market agrees to pause sales

The regulator followed up with formal action in February 2024, a month after commencing its investigation into historical motor finance mis-selling arising from the use of discretionary commission arrangements (DCAs). This action saw firms accounting for 80% of the GAP insurance market agreeing to pause sales, with several permitted to recommence selling in May 2024 after demonstrating that their products provided fair value.

The FCA’s description of what changed is significant. Firms resumed sales, in the FCA’s words, ‘with materially lower levels of commission being paid out to those selling GAP, improving value for customers’. 

The regulator identified that commission was a problem and that reducing it was the necessary remedy. These issues also highlight why some have drawn similarities between DCAs and hidden commissions in products like GAP insurance.

What has happened to GAP insurance since?

The FCA’s latest value measures data illustrates the impact of its intervention, and, by extension, how poor the value of these policies had historically been. 

In 2023, GAP insurance sold as an add-on returned just 10% of premiums to customers in claims, the lowest figure of any product the regulator published that year. In contrast, GAP insurance policies bought on a standalone basis returned 22%. By 2025, after the regulator had addressed issues with excessive and undisclosed commissions, the standalone figure had risen to 53%.

We have examined the progress made by the FCA in more detail in our analysis of what the regulator’s latest data tells us about GAP insurance and other add-on products.

Research shows that cheaper policies were often available elsewhere

In many cases, motorists would not have been made aware that cheaper and potentially more comprehensive GAP insurance policies were available from third-party insurers. This would have been particularly true where car dealers implied that taking GAP insurance was a condition of a sale, or that their product was the best or only one available for that vehicle.

GapInsurance123 explains that buying GAP insurance alongside the car from the dealer incurs the higher rate of Insurance Premium Tax (IPT), at 20%. Buying from an independent source unconnected with the vehicle purchase incurs IPT at the standard rate of 12%, an immediate saving before hidden commissions are considered.

Its sister site Total Loss further explains that GAP insurance from car dealers is often capped at 36 months of coverage and is more limited, whereas sourcing a policy yourself may enable you to obtain up to five years of coverage. That could prove vital if a car finance agreement runs into its fourth year.

Car Dealer Magazine, citing a 2019 Which? study, reported that GAP insurance policies bought from a dealer were between 102% and 278% more expensive than those bought directly from an insurer.

Mis-selling may have occurred if you were not told that you could source a cheaper policy elsewhere. A solicitor can also investigate a separate and direct claim based on the hidden or excessive commissions added to your premium, and whether you were sold the product at all when you did not need it.

What about alloy, tyre and cosmetic cover?

Did your car dealer also sell you products such as cosmetic, alloy and tyre damage insurance? Each of these policies may have been sold with the same issues as those associated with GAP insurance.

The same Car Dealer Magazine report outlined that Which? found:

• cosmetic and dent insurance was nearly 60% cheaper to buy directly rather than from a dealership; and
• alloy and tyre insurance was up to 26% cheaper to buy directly rather than from a dealership.

Although the higher price of these products could be due to other factors and may not be solely commission-related, the report also cited an earlier FCA finding that dealerships received 54% commission, on average, from selling scratch and dent insurance.

The FCA’s own data raises similar questions. In its 2024 value measures data, tyre cover sold as an add-on returned just 20% of premiums in claims, the lowest proportion of any product the regulator published that year. The regulator has also made clear that its concerns about the difference between the risk price and the total price are not limited to GAP insurance.

Why the cost of these products may have been higher than it first appeared

On top of undisclosed commissions being included in these add-on products, inflated premiums were often ‘rolled up’ into the car finance agreement itself. As a result, you were not only paying an excessive price for the insurance; you were also paying interest on that inflated price for the duration of your loan.

One of the most significant benefits of instructing a solicitor to pursue your car finance mis-selling claim, rather than doing it yourself, is that a solicitor can look beyond your motor finance agreement and investigate whether there were issues across the rest of the sales process, by requesting disclosure of all commissions you paid on related products financed at the same time.

The FCA’s redress scheme does not cover these additional claims

The FCA’s motor finance redress scheme deals with commission arrangements on the motor finance agreement itself. It does not cover GAP insurance or other add-on products.

Any complaint about these products must therefore be pursued separately from the scheme and will not be picked up automatically by a lender reviewing your finance agreement. It is one of the reasons that consumers who rely solely on the scheme may never discover that these issues existed.

Beyond add-ons: investigating irresponsible lending

Irrespective of whether you purchased and financed add-ons alongside your vehicle, a solicitor dealing with your car finance claim may also identify grounds to investigate the circumstances of the sale, such as:

• whether you were left in a position in which you could not afford to pay your car finance;
• whether your PCP agreement adversely affected your ability to apply for and use other credit products;
• whether your car finance agreement left you unable to meet existing financial obligations;
• whether the broker adequately assessed your financial situation; and
• whether your car finance agreement and the statements of payments and interest paid properly described the basis on which interest was calculated.

As with issues related to add-ons, any irresponsible lending complaint would fall outside the redress scheme and, depending on your financial circumstances at the time of taking out your agreement, may be a significantly more substantial claim.

The distinction matters for what you are paid, too. Under the final scheme rules, compensatory interest is fixed at the Bank of England base rate plus 1%, subject to a minimum of 3% a year, calculated on a simple rather than compound basis. Consumers cannot challenge the rate applied to scheme redress. Claims pursued outside the scheme are not bound by that rate and may attract statutory interest at a higher rate, particularly if consequential loss issues are identified on top of irresponsible lending.

Start your car finance claim and see what you discover

The FCA’s motor finance consumer redress scheme means you can complain directly to your lender and receive any compensation you are owed at no cost. However, you should note the scheme is partially suspended as of August 2026, with redress payments not expected to commence until 2027 at the earliest. If you do not complain yourself, lenders may contact you to advise that you may be owed compensation. In this scenario, you will still be required to engage with the lender and may not receive any compensation at all if you do not respond. However, these interactions would only deal with undisclosed commission arrangements in your motor finance agreement and not any issues arising from the broader transaction.

When you instruct Harcus Parker to investigate your car finance mis-selling claim, we can conduct checks, on your instruction, for all of these additional products, and consider whether your lender met its responsible lending obligations to you. We will liaise with you further should we believe you are eligible to bring additional claims.

Instructing a solicitor does not guarantee that you will receive more compensation. It does mean that the whole of the transaction is examined, rather than the finance agreement alone.

Check your eligibility and register your car finance mis-selling claim here.