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'New for old' Gap Insurance is a term often used.
GapInsurance123 would also like to clarify how our VRI products are settled, and that is simply in cash to the policyholder. Of course if there is any outstanding finance settlement due, then this can be paid out of the total settlement.
What we do not do is source you a car ourselves, why? Well we think you are far better at spending your own money on your own replacement vehicle. This puts you in control of replacing the vehicle as you see fit.
However, we have seen a number of consumers questioning this settlement due to information provided by other Gap Insurance companies. It is normally the case that online brands settle VRI claims as a cash settlement, but not all. Some may insist on them sourcing you a replacement vehicle as opposed to a cash settlement. However, it appears that some companies have questioned the legality of VRI Gap policies being settled as a cash payment. Why?
There is a term in insurance called 'betterment', and this regards the fact that you cannot gain by making an insurance claim. However, with VRI you do not try to gain at all, you simply are put back into the same situation as you were at the beginning. If it was a brand new car you insured, then it is a brand new car that you are covered for. Sounds simple enough.
Some have tried to argue though that if you are paid cash as a settlement then you could profit from the claim. However the mechanism of our claims process means that you are simply settled in the correct manner. For example, if a new vehicle was covered then we could contact three franchise main dealers and ask them to quote for a brand new replacement of equivalent specification. If we then look at an average of these quotes then we know that you can easily replace the vehicle for this figure. The settlement figure is then paid to you as a cash payment. Nice, simple and easy.
Of course if 'betterment' laws prevented cash settlements then Return to Invoice products could also fall foul of these interpretations. If the original invoice price at £26,000 was actually higher than the brand new replacement at £24,000 then you could be gaining by making a claim technically. This senario is unlikely we agree, but of course still possible. How many Gap Insurers do not pay cash settlements on Return to Invoice? We could not find one.
Of course do not just take our word for this, the Financial Ombudsmen has given clear views on how insurers are expected to settle replacement claims. Take a look at this directly from the Financial Ombudsman website Insurers and replacement settlements. Of course this is a generic assessment based on all replacement options on insurance products, and we have added our views on each point.
Some interesting excerpts:
- Our selection of case studies illustrates the types of complaints brought to us and the way in which we have resolved them. Our approach to such disputes has not changed over the years - and we outline here the general principles we follow.
Gap123 - The approach of the Financial Ombudsmen has always been consistent and therefore the principles can be applied to VRI Gap cases too.
- Most household policies now provide 'new-for-old' cover but leave it to the insurer (not the policyholder) to decide whether the claim should be settled by repair, replacement, reinstatement or cash settlement. Where a case is referred to us, we consider whether the insurer has exercised this power reasonably, in the circumstances of the individual case.
Gap 123- Please note that the Financial Ombudsmen clearly states that cash settlements are a valid option for 'new for old' replacement policies.
- Where insurers opt for replacement, we consider whether a reasonable replacement can be obtained in the way the insurer has proposed. If, for example, the item concerned is jewellery that is antique or specially-commissioned, then we are likely to conclude that it would be unfair for the insurer to insist on the policyholder buying a modern substitute from a major high-street retailer. In such cases, we usually conclude that policyholders should be allowed to choose where they purchase a replacement and are entitled to a cash settlement (without the deduction of any discount) if they are unable to find an acceptable replacement.
Gap123 - So the Financial Ombudsman is saying they must be satisfied that the replacement that is offered must be of equal standing, and if it is not then the policyholder must be offered a cash settlement, interestingly without discount, for the full replacement costs. This does bring into question motor insurance policies that say they provide a replacement vehicle option, but only offer market value as a cash settlement, or Gap policies that offer you a replacement vehicle that you decline, but then offer a cash settlement lower than the current replacement costs. It appears that the Financial Ombudsmen may find in the policyholders favour if a complaint was made in these circumstances.
- Where a reasonable replacement can be obtained from a high-street retailer, insurers often specify which one - because they have a discount arrangement with that particular retailer. We are likely to conclude that this is reasonable if the consumer lives within easy travelling distance of that retailer - and the retailer can provide a reasonable replacement. Similar issues arise if the insurer offers vouchers that can only be exchanged for goods sold by a particular retailer.
Gap123 - So it is acceptable for insurers to offer a replacement vehicle, but
- Sometimes, policyholders prefer to have a cash settlement even though there is no practical reason why they could not visit the insurer's preferred retailer - and that retailer is able to provide a reasonable replacement. In such instances we will not usually consider it unreasonable for the insurer to deduct from the cash settlement any discount it would otherwise have obtained from the retailer
Gap123 - It appears that the Financial Ombudsman expects insurers to offer a cash settlement if it is requested by the policyholder, as long as the cash settlement is a fair price for the replacement vehicle. Remember the Gap123 VRI settlement ensures that you are offered a fair replacement settlement at the time you make a claim, and most importantly, in cash!!
So cash settlements on replacement insurance is not illegal, does not break any rules and actually perfectly acceptable to the Financial Ombudsman it would seem.
Of course if you are told any information regarding cash settlements on replacement policies that is contrary to this, especially if it another company commenting on our products, then we would be very interested to know as perhaps would their underwriting insurers. No one knows our products better than us I am sure you would agree.
Please be assured that if your are taking a Vehicle Replacement policy from GapInsurance123 then it will cover to the future replacement costs, and the settlement is made in cash to you, the policyholder. Fair and simple.