FCA urges UK insurers to improve motor insurance claim handling
UK insurers have been urged to improve their claim handling skills after the UK’s financial watchdog found “concerning evidence” of poor practice in the motor insurance market.
The Financial Conduct Authority (FCA) said hikes in motor insurance premiums were down to how claims are handled by insurers, adding that “insufficient management information” was resulting in “failures” to promptly identify and resolve claims handling issues.
However, higher prices for cars, parts, labour, energy and more complex cars and supply chains were among the reasons behind the rising cost of claims, the FCA said.
A significant rise in the cost of hiring vehicles, as well as the number and cost of theft claims and uninsured drivers, were also listed as reasons for the increase.
But the FCA also warned referral fees from credit hire firms and claims management companies were associated with slower claims processing and rising costs.
Motor insurance premium costs remain high
The average cost of car insurance premiums dropped seven per cent in the first three months of 2025 compared to 2024, decreasing from £635 to £539 according to the latest quarterly figures from the Association of British Insurers.
However, the cost of premiums remains high compared to two years ago, when the average annual policy cost was £478.
The rising cost of premiums saw Compare The Market increase its revenue by £100m in its latest quarterly results, as customers sought to switch providers.
ABI Director General Hannah Gurga said: “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 stem from issues beyond the industry’s direct control, making collaboration essential to find sustainable, long-term solutions.”.
The regulator confirmed it will take action against firms if necessary when poor practice is identified, as well as addressing concerns with them directly.
The watchdog previously pledged to ensure the integrity of the motor finance market if a redress scheme is implemented.
FCA pledges to tackle rising costs
Sarah Pritchard, deputy chief executive of 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,”.
The FCA stated it had uncovered some good practice in the home and travel sector but that it had also uncovered evidence of poor claim handling practices, including a lack of oversight of outsourced services, which resulted in poor customer outcomes, delays in settling claims, and high complaint volumes.
It also found insufficient management information, resulting in failures to identify and resolve claim handling issues and delays properly. Cash settlements were also found to be used in instances where they may not have been suitable and without specific consideration.
Despite a total of nine named storms hitting the UK during 2024, the FCA found a high rejection of storm claims, with only 32 per cent made to firms in 2024 resulting in payment.
The regulator will provide the necessary evidence for coordinated action from the government, industry, and other regulators to reduce the cost of motor premiums as part of the government’s motor task force, but has warned that while it can help drive down cost increases, it cannot prevent them.
“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,” Pritchard added.
“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.”