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UK insurers are expected to pay £200mn in compensation to 270,000 people who were short-changed on payouts for stolen or written-off cars in recent years, the financial watchdog said on Friday.
The Financial Conduct Authority said the payments stemmed from its recent findings that many insurers had been lowballing customers when they made claims by offering settlements below the value of the cars they had insured.
Following a review of the sector last year, the FCA said it “found that in some cases, automatic deductions to payouts were made for assumed pre-existing damage”, which had “particularly disadvantaged careful drivers who had looked after their vehicles”.
Admiral, one of the UK’s biggest car insurers, announced last month it had set aside £50mn to compensate customers for this issue, which it said accounted for about 3 per cent of total loss claims over the past six years. That followed a review that the watchdog required Admiral to conduct of its vehicle valuations in that period.
The FCA said £129mn of compensation has already been paid to 150,000 drivers, adding that any customers due compensation will be contacted by their insurer. It reviewed 12 insurers and engaged with a further six firms, covering about 90 per cent of the market.
Anyone unsatisfied with the handling of their claim should contact their insurer first and then contact the Financial Ombudsman Service if they were unsatisfied with the response, it added.
“It’s not great for the industry,” said Paul De’Ath, head of market intelligence at consultancy Oxbow Partners. “Insurers were assuming that people’s cars were more damaged than they actually were . . . when they were doing valuations for cars that had been written off, they were assuming a certain level of wear and tear that isn’t necessarily the case.”
The FCA initially warned insurers not to undervalue cars and other insured items when settling claims in December 2022 before carrying out a review that identified “shortcomings in insurers’ valuation of vehicles” when it concluded in March last year. Since then, it said “motor insurers have changed their settlement and compensation practices”.
Sarah Pritchard, deputy chief executive of the FCA, said: “We’ll step in when consumers aren’t getting fair value — and we are pleased to see that the practices which led to some unfair payouts have already changed.”
The compensation payments were welcomed by Rocio Concha of consumer group Which?, who said they highlighted the need for the watchdog to intervene in other areas. “In home and travel insurance markets, claims acceptance rates have been alarmingly low, while two FCA investigations have found serious failings with claims handling — yet little action has been taken,” she said.
An Association of British Insurers spokesperson said: “Our members have made changes to their settlement approach and taken the necessary steps to support customers.”
The watchdog also carried out a review of motor insurance pricing earlier this year. It found that the average cost of insuring a UK vehicle had risen 23 per cent in the four years to 2023, but this more than reflected higher costs following a 27 per cent rise in the average claim cost per policy.
