Market responds to FCA clamp down on 'poor' practice in claims

The UK general insurance market has welcomed the FCA’s decision to take action against some firms after finding cases of “poor” claims handling.

The regulator said it had uncovered “concerning evidence” of bad practice – including weak oversight of third parties, high complaint volumes, settlement delays, high rejection rates for storm damage and an overreliance on cash settlements that failed to meet customers’ expectations.

Where it has seen poor practice from firms, the regulator is addressing it directly with them, including taking action against specific firms where necessary.

Sarah Pritchard, deputy chief executive at the FCA, said: “Insurance provides peace of mind but people must be confident they can get a fair deal and be treated right when the worst happens.

“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.”

The FCA’s findings focused on the home, motor and travel sectors and prompted broader reaction across the general insurance market.

Clarity and communication

David Sparkes, regulation director at Biba, acknowledged the regulator’s concerns around cover misunderstandings and storm-related claims.

“On home claims, it appears that more work may be needed to ensure that customers better understand what they are covered for, especially in relation to particular perils such as storm and the application of wear and tear,” he said.

“Biba has previously issued guides on claims, which help explain to consumers how home, travel and motor insurance claims are managed and we will reissue this guidance via our members and add to it, as necessary.”

Michael Sicsic, managing partner at Sicsic Advisory and a former FCA regulator, noted that the regulator’s concerns over storm-related disputes signalled the need for collective action.

“The regulator [is] saying there is a market-wide issue and they’re asking the trade body, ABI, to come up with a market solution,” he said.

Hannah Gurga, director general at the ABI, added: “Ensuring a smooth and stress-free claims process is crucial for customers when going through what can already be incredibly difficult circumstances.

”Our members work hard to achieve this, but we will engage with them and the regulator to understand what improvements can be made in the claims handling journey, to ensure good outcomes for customers and to support trust and confidence in the industry.”

Time to rethink the process

For some, the FCA’s intervention presented an opportunity for the market to reassess how claims were handled in practice – and where technology could reduce existing gaps.

Mohammad Khan, head of general insurance at PwC UK, said: “By leveraging technology such as automation, data analytics and the latest advances in generative and agentic artificial intelligence (AI), insurers can streamline claims processing, reduce errors and improve customer satisfaction.

“Transparency in claims handling is paramount, fostering trust and demonstrating a genuine commitment to customer well-being.”

Kathryn Moore, head of non-life at Broadstone, said the FCA’s findings reinforced the value of claims data, well-designed systems and a governance-first approach to fairness.

“It is clear that well-governed, customer-centric claims processes, backed-up by focused management information, are seen as good practice for all insurers,” she said.

“The previous work from the FCA in the retail insurance market has evidently had a positive effect in reducing price-walking practices costs for consumers.

“Alongside a government taskforce and in tandem with the ABI, the efforts of the FCA to continue to support the industry to deliver good outcomes for consumers and build confidence in the market.”

Premium rises

While the FCA found shortcomings in how some insurers handle claims, it also revealed that rises in motor insurance premiums were largely driven by external cost pressures, including higher prices for cars, parts, labour, energy and more complex cars and supply chains.

“This confirms that increased costs outside of firms’ control, rather than firm profit, were the biggest cause of recent premium rises in motor insurance,” the regulator said.

Prices are starting to come down, however. Data from Confused.com and WTW, published in June 2025, revealed that car insurance premiums fell 16% over the last 12 months, with UK policyholders now paying £757 on average for their cover.

Steve Dukes, chief executive at Confused.com, said: ”Car insurance prices have dropped sharply over the past 18 months, which is great news for drivers. But let’s be clear – premiums are still far higher than they used to be.

“We need to really challenge the factors that are contributing to high costs for insurers. Tackling these together as an industry will help to reduce costs, which can be passed on to customers in cheaper premiums.”

Gurga added: “The FCA’s findings confirm that record-breaking claims costs are behind recent increases in motor insurance premiums.

“They also demonstrate that many of these cost pressures – such as rising vehicle repair costs, part shortages and increased thefts – stem from issues beyond the industry’s direct control, making collaboration essential to find sustainable, long-term solutions.”

Despite these external challenges, the FCA reminded firms that there was still work to do in delivering good customer outcomes.

The regulator also criticised insurers’ oversight of third-party administrators (TPAs) – a theme highlighted by Sicsic.

“The FCA are questioning the reality of the oversight and the fact that the insurer needs to keep responsibility, even if they are outsourced. You can outsource your specific activities, but you cannot outsource your accountability,” he said.

This point addressed the regulator’s concerns over governance gaps and reinforced calls for insurers to maintain end-to-end control.

Pritchard added: “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.”