FCA uncovers poor insurance claims handling practices

In the United Kingdom, the Financial Conduct Authority (FCA) has revealed significant evidence of inadequacies in the handling of insurance claims by certain providers. This announcement follows an investigation that identified systematic failures impacting customer experiences. Although the regulator noted that rising motor insurance premiums are chiefly influenced by external cost pressures—such as increased theft claims and the cost associated with hire vehicles—it indicated that claims handling practices also contributed to the situation. Insurers have been urged to enhance their operations to ensure timely and effective claims processing. The FCA's findings highlighted several alarming issues. For instance, it was discovered that many firms lacked sufficient oversight over outsourced services, resulting in poor customer outcomes, delayed claims settlements, and an influx of complaints. Furthermore, inadequate management information systems were pinpointed as a reason for some insurers failing to promptly identify and rectify claims handling issues. The regulator mentioned that in some instances, cash settlements were being used without adequate consideration for whether they were the best option for customers, raising concerns about the fairness and appropriateness of these outcomes. In addition to issues with general claims processing, the FCA published statistics showing high rejection rates for claims related to storm damage. Alarmingly, only 32% of such claims filed with a sample of firms in 2024 resulted in a payout, indicating a potential systemic issue affecting consumers’ rights and expectations in the insurance sector. The FCA’s proactive stance includes direct engagement with firms exhibiting poor practices and potentially taking action against them to foster accountability. To combat the rising costs of motor insurance premiums, the FCA is advocating for coordinated efforts involving the government and industry stakeholders to address the root causes. Comprehensive reforms have already been implemented to tackle practices such as price walking, ensuring that loyal customers are not unfairly penalized at renewal. The regulator emphasizes the vital importance of a smooth and stress-free claims process, advocating for improvements that protect consumers during challenging times. The ongoing premium finance market study aims to ensure fair value for customers opting for monthly payment plans, reflecting the FCA's commitment to addressing the broader landscape of consumer finance within the insurance market.