GLASS'S Information Services have predicted that new insurance legislation will lead to a significant increase in operating costs, most of which will be passed on to customers.

From January 2005, 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 the cost of providing used car warranties could increase by around 25 per cent, 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.

On a positive note, Glass's says the new regulations should boost used car buying confidence, as all insurance products will have to be completely transparent to comply with the regulations.