The Financial Conduct Authority (FCA) focused its assessments on home and travel insurance, as well as the costs of paying in instalments, and found several areas where customers weren’t being treated fairly.
Which? has long raised concerns about how the industry treats customers. Here's what the watchdog FCA found, and what you can do to make sure you’re not caught out.
undefinedClaims handling criticised
In its report, the FCA said: 'While many firms in the sample treated their customers correctly, we've found too many examples of customers not receiving the service they're entitled to.'
Issues included a lack of oversight or control of the claims process, where parts of it were outsourced to third-party firms, particularly among insurers based overseas.
It also noted that some home insurers were offering cash settlements to resolve claims without properly considering whether this was most suitable for the customer.
Find out more: .Only 32% of storm claims paid
The FCA also highlighted issues with home insurers rejecting high volumes of claims due to storm damage. Of the storm-related claims made in 2024 that the FCA analysed, just 32% resulted in a payout.
It believes some of this could be down to 'weaknesses in firm definitions' – with some policies failing to clearly explain what conditions are covered.
Weather-related damage is becoming an increasing burden for both homeowners and insurers. According to the Association of British Insurers, claims costs for adverse weather totalled £226m between January and April this year, which is a record figure.
Earlier this year, Which? analysed hundreds of insurance policy documents and found that 20% included potentially unfair definitions of storms, while 32% had similar issues with flood definitions.
Find out more:Premium finance fair value questioned
The FCA also published an update on its ongoing market study into 'premium finance' – the way many policyholders spread the cost of insurance by paying in monthly instalments.
According to its figures, some 48% of car and home insurance policies are brought this way – often by customers who can’t afford to pay annually, particularly those who are financially vulnerable or already facing higher premiums.
The FCA's paper suggests that some customers pay substantially more in charges, such as interest and commission, than it actually costs to provide them with premium finance. It claims that margins in made on these monthly payers can range from 14% to 62%.
It commented: 'Premium finance providers incur a material level of costs so that consumers can pay monthly. Despite this, revenues materially exceed costs for some providers.'
Did the FCA report anything else?
The FCA also published two other insurance reports on the same day, both focused on pricing.
The first looked at what's been driving rising car insurance costs in recent years – specifically between 2019 and 2023. During this period, the FCA’s data shows the average premium rose by 23%.
It concluded that the increase was largely due to higher claim costs faced by insurers, rather than firms profiteering.
The loyalty penalty ban
The second report assessed the impact of the 2022 ban on the so-called ‘loyalty penalty’, which stopped insurers from offering cheaper deals to new customers while charging renewing customers more.
Before they came into force, the FCA estimated that while some customers would see price increases, the measure would result in overall savings of around £4.2bn over a 10-year period.
However, its latest analysis suggests that the reforms appear to have led to lower prices in the car insurance market (compared with what customers would have been paying had the ban not been enacted) – but not for home insurance customers.
It's revised its estimate of overall savings down to £1.6bn.
Find out moreundefinedSupport our campaign to end rip-off insurance
After years of sustained price rises, car insurance premiums are beginning to fall. However, we believe that insurers are failing consumers in various ways, from poor claims handling to the interest fees charged for customers paying in monthly instalments. That's why we're campaigning to get the regulator to take decisive action.
Find out more:source https://www.which.co.uk/news/article/fca-finds-insurers-falling-short-heres-what-to-watch-for-aPN9u1y7SeQe