3 things to know about the FCA's latest review of insurers

The Financial Conduct Authority (FCA) has issued its latest in a string of reports criticising insurance firms for failing to live up to its expectations. 

In a report published on Wednesday, the regulator argued that many providers are falling short when it comes to proving that they're providing 'fair value' to their customers. It also released new data showing how often insurers pay claims and how many claimants complain.

We've dug through the detail to explain the three key things you need to know about its findings, what they may mean for you and how you can help us to bring the industry to account.

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1. Insurance firms are failing to get their heads around 'fair value' rules

In January 2021, the FCA introduced rules requiring insurers to ensure their products provide 'fair value' – in other words, whether customers are paying prices that are reasonable when compared to their levels of risk and the costs of providing the cover. 

Firms are required to submit regular claims statistics to the regulator, while also carrying out ongoing 'fair value assessments' of the design and delivery of their products. Under the rules, firms should be able to readily give evidence demonstrating that their customers get fair value. 

As part of a review, the FCA has now analysed information from 28 insurers and 39 distributors (firms that sell insurance – including intermediaries, such as brokers) to examine how well they're following its standards and if they've taken effective action where products have been found not to offer good value for money.

The watchdog hasn't liked what it's seen, concluding that:

• Many insurers aren't adequately assessing and evidencing that their products deliver fair value and good customer outcomes, which means they're not identifying cases where they're falling short.
• Most distributors don't fully understand their responsibilities to consider the extra charges paid to them (such as fees and commission), and how these can affect whether the customer receives fair value.
• These failings can lead to consumer harm.

Find out more: how car insurers failed the value-for-money test

Premium finance

One of a number of areas in which distributors fell under fire is in failing to consider the impact of interest payments for customers who pay monthly – known as 'premium finance' – when evaluating value for money. 

The report says 'most firms...where the distribution strategy involves offering – or arranging to offer – retail premium finance, failed to take into account the costs of this finance.'

Earlier this year, research published by a provider of premium finance suggested that 71% of adults currently borrow money to pay for insurance. And having found some car and home insurers to be charging exorbitant interest rates to monthly payers, Which? has been calling for the regulator to intervene. 

• Find out more: learn about our campaign to End the Insurance Rip-off

2. Claims handling has worsened with most kinds of insurance

Alongside its report, the FCA published new statistics detailing how claims were handled in 2023.

In more than half of the 33 insurance areas compared, the data shows that insurers have been accepting fewer claims than in the previous year. With combined home insurance, for example, 24% of claims were rejected in 2022, compared to 28% in 2023.

And in the majority (17) of the insurance product areas – including home insurance, car insurance and travel insurance – the number of claims leading to customers making complaints has risen.

To heighten your chances of your claim running smoothly (including a look at which car and home insurers get the best customer feedback from claimants), check our packed guides on claiming for car, home and travel insurance.

3. What the FCA is doing

Matt Brewis, Director of Insurance at the FCA, commented that while progress is being made, 'we are still seeing too many examples of insurers and brokers lacking the right information, governance or oversight to ensure their customers get consistently good outcomes.'

Speaking of the FCA's new report, he's urged insurance firms to 'take note of our findings and make improvements, where appropriate,' adding 'we'll continue to take action where we see poor value, so consumers can have confidence when buying insurance products.'

Is the FCA doing enough?

Between February and May, the regulator froze sales of most of the Gap insurance market, after concluding that these products weren't providing fair value to some customers. In March and June, it published two reports looking at how fairly car insurers were settling claims and whether insurers have been assessing adequately how well-served their customers are. 

Its latest review joins these in highlighting significant, widespread problems. In this third report, the FCA notes it's currently providing feedback to firms, and writes 'We are currently considering the most appropriate supervisory and regulatory actions we can take to urgently address these issues.' 

But after three reports, it has yet to announce enforcement action against any of the firms found to be failing to meet requirements. We think the FCA needs to get tough with poorly behaving companies. That's why we've launched a campaign calling for an end to the insurance rip-off.

• You can help us by signing our petition.

Rocio Concha, Which? Director of Policy and Advocacy, said: 'The FCA has found that insurance firms are failing to prove they are providing good outcomes and value for their customers. This follows Which? research that has consistently uncovered that some insurers are letting down their customers – whether it's prolonging the ordeal of making a claim or charging eye-watering levels of interest to pay for cover monthly. 

'We've found some insurers have made the claims process a nightmare for consumers, from customers feeling harassed for difficult-to-obtain information about seriously ill family members to claimants living in mould-ridden houses for months as their claim dragged on.

'A number of car and home insurers continue to charge customers who can't afford to pay for cover in one go, annually, excessive levels of interest, which could end up adding hundreds of pounds to the final bill. The regulator has long acknowledged that this is a "tax on being poor" and must urgently publish an action plan to set out how it will force firms that do this to stop it and give consumers fair value.

'Good standards of customer service didn't begin with the Consumer Duty. Insurers have been bound to regulatory requirements for years. If the Consumer Duty is to be worth the paper it's written on, the FCA must be prepared to take tough and decisive action against firms that fall short across the industry.'

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