FCA analysis shows that increases in the cost of motor claims – due to higher prices for cars, parts, labour, energy and more complex cars and supply chains – have contributed to premium increases. The cost of hire vehicles, the number and cost of theft claims and uninsured drivers have also risen significantly. This confirms that increased costs outside of firms’ control, rather than firm profit, were the biggest cause of recent premium rises in motor insurance.
However, the FCA did identify that referral fees from credit hire firms and claims management companies were associated with slower claims processing and increasing costs.
While it saw some good practice in the home and travel sector, it also uncovered concerning evidence of poor claims handling practices, including:
Lack of oversight of outsourced services, resulting in poor customer outcomes, delays in settling claims and high complaint volumes;
Insufficient management information resulting in failures to promptly identify and resolve claims handling issues and delays;
High rejection rates for storm damage claims (only 32% of storm damage claims made to our sample of firms in 2024 resulted in a payment); and
Cash settlements being used without sufficient consideration of whether they are most suitable.
Where it has seen poor practice from firms, the regulator is addressing it directly with them, including taking action against specific firms where necessary.
It is also providing the evidence needed for coordinated action from Government, industry, and other regulators, as part of the Government’s motor taskforce, to help drive down the cost of motor premiums. This could help limit cost increases but it cannot prevent them.
Also published today was 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. While premium finance allows customers to spread costs, making them affordable and providing flexibility, the regulator has found that some firms earn much more money than it costs to provide it. It will explore these concerns further in the next phase of the study and will seek to tackle any issues it finds first through the Consumer Duty, publishing a final report by the end of 2025.
Sarah Pritchard, deputy chief executive of the FCA commented: 'Insurance provides peace of mind but people must be confident they can get a fair deal and be treated right when the worst happens. External cost pressures are primarily to blame for recent motor premium increases, not increased firm profits, but there is some more work to do on claims handling, particularly in home and travel. That’s why we’re stepping up - making sure claims are handled promptly and fairly and pushing for a coordinated effort to tackle the root causes of rising motor premiums. A well-functioning insurance market helps consumers navigate their financial lives and supports growth by building people’s resilience to financial and personal shocks.'
Given the importance of the insurance market to consumers, the FCA undertook a series of reviews to see how the market is working.
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. This means its reforms were effective in curbing price-walking, where loyal customers – often vulnerable – were charged more at renewal.
A roadmap for retail insurance – empowering consumers and strengthening markets – Summary Report
Home and travel claims handling arrangements: good practice and areas for improvement
Multi-firm review: Motor insurance claims analysis
MS24/2.2: Premium Finance Market Study: Update Paper
Evaluation Paper 25/2: Our general insurance pricing practices (GIPP) remedies
Over the summer of 2024, the regulator reviewed the motor insurance market, looking for areas that could impact the functioning of the market or risks to consumer outcomes. This work coincided with the Government establishing a taskforce on motor insurance.
The FCA welcomed the taskforce in October 2024. At the same time, it publicly announced a number of priority areas where we were taking action, including several of the reports published today.
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