There are two main types of insurance. These are classed as compulsory and supplementary.
An example of a a compulsory insurance would be car insurance. This is because, in order for you to be able to drive on public roads you must have car insurance. You have no choice and having cover in place in mandatory.
Gap Insurance is a supplementary insurance. This means that it is not legally necessary to have cover in place and it is an optional extra that you have the right to either protect yourself or not as is your choice.
The Financial Conduct Authority are the governing body who regulate the sale of all insurance.
Their aim is " to make financial markets work well so that consumers get a fair deal." taken FCA website 2017.
They work hard to
This means that any gap insurance provider you buy gap insurance from must be regulated either directly or via an appointed network to be able to provide you with cover. They are there to make sure that any policy you choose to buy is fair and will perform exactly the way you would expect it to in the event of a claim.
It also means that as Gap insurance is classed as a supplementary insurance if the underwriting insurer is unable to meat their financial obligations then FSCS ( Financial Services Compensation Scheme) will settle any valid claim 90% basis with no upper claim limit.
The FSCS is a compensation scheme that banks, insurance companies and providers and well as financial institutions in fact anyone who sells insurance and financial services pays into to make sure that should a bank or insurance company fail that there policy holders and investors are not left without protection.
The Financial Ombudsman is the mediation body who where set up by parliament to mediate between the financial institution and the consumer when things go wrong. This means that if you have a complaint about your gap insurance policy then if you have been unhappy with the outcome then this is the body who would try to help.
So in brief summary
The Financial Conduct Authority - FCA - regulate the sale of the policy / insurance / investment
The Financial Services Compensation Scheme - FSCS - compensation scheme who look after you if the business you are dealing with fails
The Financial Ombudsman Service - FOS - The body who mediate between business and the end policy holder or investor when things go wrong.
Ultimately, gap insurance is not compulsory and it is your choice to either protect yourself or not as you see fit.
That said, you should buy a policy you should be able to rely on it performing exactly the way in which you expect it to for the life time of the policy.
Any business, gap insurance provider, garage or dealership who ignores the guidelines, rules and in our mind ethics of these three bodies ignores them at their peril and they can between them stop a business from trading and impose massive monetary fines.