Vehicle valuation specialist Glass’s has said that new legislation affecting how UK motor vehicle dealers sell insurance products is almost certain to lead to a significant increase in operating costs, most of which will ultimately have to be passed on to customers.
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From this month, motor traders are required to be registered with the Financial Services Authority (FSA) to sell any kind of insurance – including mechanical breakdown insurance, MOT insurance, credit protection, roadside assistance and Guaranteed Asset Protection (GAP) insurance. According to the FSA, only a minority of retailers have so far registered with them.
Some sources predict that the cost of providing used car warranties could increase by around 25%, with further significant expenditure required for staff training and for managing compliance within the new regulatory structure.
The new rules could have a major impact on the types of financial services that dealerships are willing to offer in 2005 and beyond, particularly in relation to older cars.
“For example, offering mechanical breakdown insurance has become an established way of attracting customers towards older vehicles, but soon it may no longer be financially viable to offer cover on this type of lower-priced car due to the increased associated costs,” said a Glass’s spokesman.
On a more positive note, the new regulations should boost used car buying confidence, as all insurance products will have to be completely transparent to comply with the regulations.
The new rules should also mark the end of misleading and many poor quality warranties, as maximum claims limits and policy excesses will have to be fully explained, and the consumer will have the right to cancel the policy within 14 days.
The changes could have significant implications for residual values over the longer-term. The spokesman added: “Smaller dealers selling an older mix of used cars may have to abandon warranties, and many will consequently have to reduce prices if they are to continue to attract customers.”
