Improvement Required in Motor Insurance Claims Handling, According to FCA Report
In the ever-evolving landscape of the insurance market, the Financial Conduct Authority (FCA) has been actively working to ensure fairness and transparency for consumers. The regulatory body recently announced a series of developments and regulations aimed at improving claims handling, valuation, and premium finance practices.
The FCA's latest focus is on tightening controls over claims processing times, ensuring fair valuation and settlements, reducing costs inflated by referral fee practices, and introducing an accessible redress scheme for motor finance customers.
Poor claims handling practices, including delayed processing and lack of proper oversight of outsourced services, have been identified as causing customer harm and high complaint volumes. Firms are expected to improve claims turnaround times and management information systems to promptly identify and resolve issues.
The FCA is scrutinising the use of cash settlements, expressing concern about the fairness and accuracy of estimated values in claims, with some evidence of high rejection rates for certain claims like storm damage. The regulator expects transparency and fairness in fees charged by Credit Hire companies and Claims Management Companies (CMCs), requiring these fees to be reasonable and reflect actual work done. Consumers must be informed about their right to exit agreements at any time without unreasonable penalty.
Following a Supreme Court judgment, the FCA, together with the Solicitors Regulation Authority (SRA), is working towards a consumer redress scheme set to be consulted on in October 2025 and operational in 2026. This scheme aims to address undisclosed or unfair motor finance commissions and will require law firms and CMCs to inform clients about their rights, the existence or prospect of the redress scheme, and fees before agreements are signed.
The FCA rules mandate that CMCs and law firms clearly inform consumers about commission claims, fee structures, termination rights, and ensure any promotional materials are not misleading or speculative.
The FCA's evaluation of its pricing reforms showed they are having the intended impact on the price gap between new and existing customers in both the motor and home markets. However, the regulator has also identified instances where firms earn much more money than it costs to provide premium finance. These concerns will be explored further in the next phase of the study.
The FCA is conducting an interim update of the ongoing premium finance market study investigating whether consumers receive fair value when choosing to pay for insurance in monthly instalments. The increases in the cost of motor claims, due to higher prices for cars, parts, labor, energy, and more complex cars and supply chains, have contributed to premium increases.
In response, the FCA has warned insurance firms not to undervalue cars and other insured items when settling insurance claims, especially during the cost of living squeeze. The regulator is also taking action against specific firms where necessary and providing evidence for coordinated action from Government, industry, and other regulators to help drive down the cost of motor premiums.
Additionally, the cost of hire vehicles, the number and cost of theft claims, and uninsured drivers have also risen significantly. These factors, along with the issues identified in the premium finance market study, underscore the FCA's ongoing commitment to protecting consumers and promoting a fair and efficient insurance market.
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