The FCA has released the findings of its multi-firm review, which assessed motor insurance firms’ claims handling processes for valuing stolen or written off vehicles. The review outlines crucial steps the regulator now expects firms to take to ensure they’re delivering good outcomes for customers.

The review was conducted after fair value concerns were raised, citing evidence of consumers being offered settlement sums that were lower than their vehicles’ market value.

Commenting previously on the issue, Sheldon Mills, Executive Director, Consumers and Competition at the FCA, said:

“When making an insurance claim, people shouldn’t need to question whether they are being offered the right amount for their written off car.

“Insurance firms should offer settlements at the fair market value. This is especially important now as people are struggling with the cost of living will be hit in the pocket at precisely the time they can ill afford it.”

The FCA’s findings also indicate that insurers still have gaps in their Consumer Duty implementation that need addressing.

Under the Consumer Duty, the Board must – at least annually – review and approve an assessment of whether the firm is delivering good outcomes for its customers, which are consistent with the Duty.

The assessment should address how the firm has responded to the outcomes of the FCA’s reviews into the sector.

So, what do firms need to know?


Customer care and Consumer Duty: obligations are not being met

Comprising survey data from 12 firms – collectively making up around 70% of the market – the review is relevant to all insurance firms and third parties involved in valuing motor vehicles.

The review took a deep dive into multiple key areas across the claims handling lifecycle, highlighting instances of firms breaching their ICOBS and Consumer Duty obligations, including:


Valuation of vehicles

  • Offering average settlement values lower than the available guide prices for these vehicles, indicating that customer claims had been handled unfairly. The regulator reminded firms that making offers lower than the customer is entitled to is a breach of ICOBS 8.1.1R
  • Making unfair deductions to the final settlement price based on the pre-accident condition of the vehicle (i.e. taking unrelated ‘wear and tear’ into account)
  • Knowingly providing a ‘first offer’ settlement lower than the guide price and only upping the amount if the customer challenged the amount or complained, leading to different outcomes for different customers based on their propensity to complain.  This practice relies on customers having the capability or inclination to challenge the offer, a practice which is unfair and which particularly disadvantages customers with vulnerable characteristics

“A firm’s first offer for the settlement price of a written-off vehicle should be its best estimate of its market value.”

  • Using multiple valuation methodologies without monitoring the related customer outcomes to ensure it did not lead to customer harm


Communicating an initial offer

  • Under the Consumer Duty, the regulator expects firms’ communications with customers to help them make effective, timely and informed decisions and support them in realising the benefits of their policy without unreasonable barriers
  • Most firms clearly explained the settlement offer, but the regulator found that some firms were dissuading customers from challenging the valuation in their customer. communications, for example, by stating that the valuation approach reflects the Financial Ombudsmen approach. This presents a risk that the customer may believe that there is no prospect of a valuation increase and persuades them to accept a low offer
  • The regulator reminded firms that they must consider the information needs of the customer and communicate in a manner that is fair, clear, and not misleading


Handling disputed valuations

As part of the requirement to handle claims promptly and fairly, the regulator expects firms to have an effective process where the customer disputes the valuation.  The regulator asks firms to:

  • Ensure they are not discouraging customers from disputing valuations
  • When using a more detailed methodology at the re-evaluation stage to look at how they can satisfy themselves that using this methodology doesn’t result in unfair outcomes for those customers that didn’t dispute the valuation



The Consumer Duty expects firms to assess if outsourcing claims handling can have a negative impact on customers and if so to take mitigating steps.  In the review, the regulator found firms:

  • Not having sufficient oversight arrangements for third-party providers
  • Not managing conflicts of interest fairly (in line with PRIN 8) and being able to evidence that they had done so effectively
  • Where firms outsource parts of the claims process, being unable to evidence this doesn’t lead to systemically different outcomes between consumers


Treatment of policies after a claims settlement

To support compliance with Consumer Duty, firms should ensure they consider the needs of their customers at every stage of the product lifecycle including after the point of claim where they may be vulnerable.  Areas for improvement were:

  • In cases where premiums are paid monthly, firms were deducting all remaining instalments from the settlement payment instead of taking agreed monthly payments (i.e. unilaterally taking outstanding sums in one go, potentially exposing customers to financial harm as they may not have budgeted for the insurer taking the outstanding amount in one go)


MI/Data collection

Under the Consumer Duty, the regulator expects firms to monitor and regularly review the outcomes that customers experience. If firms identify worse outcomes for any group of customers, they must take appropriate action to address this.  Areas for improvement were:

  • Insufficient or no data collection on total loss claims (i.e. number, scale and reasons for increase in claims)
  • Insufficient or no tracking of vehicle valuations against their average market price over time
  • In cases where some cases were tracked, or different methodologies were used, being unable to evidence this doesn’t lead to systemically different outcomes between consumers


The FCA’s motor insurers focus: Don’t wait to take action

With the review finalised, we recommend that firms now take the time to review the above list – as well as take an honest look at their own claims management process – to see if they recognise any of the above issues and take meaningful steps to address their own shortcomings, inefficiencies and data gaps.

In the FCA’s own words:

“We expect Senior Managers to engage in the findings of this work, and will hold them accountable for ensuring that they have considered our findings to ensure that their own processes meet our requirements.

“We may ask firms to explain the actions they have taken in response to this publication.”

It’s clear that the insurance sector remains a mainstay of the regulator’s agenda for the foreseeable future. With the first annual Consumer Duty assessment deadline only months away, firms can’t afford to kick these types of fundamental issues into the long grass.


Looking for expert support on your claims handling strategy?

With so many factors to consider, it can be hard to know where to begin crafting a claims management plan that’s fit for the future — TCC’s compliance experts can help.

Contact our regulatory specialists today to address your specific compliance goals together.