Insurance firms have been warned not to undervalue cars and other insured items when settling insurance claims especially during the cost of living squeeze.
The Financial Conduct Authority (FCA) has seen evidence that some consumers who have had their cars written off after an accident are being offered by their insurance providers a price lower than the vehicle’s fair market value.
In some cases, claims staff are only increasing that offer to the fair market price when a consumer complains.
Offering a price lower than fair market value is not allowed under FCA rules. The FCA is acting against those firms that it has found breaking its rules.
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 or other goods that they need to replace.
‘Insurance firms should offer settlements at the fair market value. This is especially important now as people struggling with the cost of living will be hit in the pocket at precisely the time they can ill afford it.
‘We are watching the behaviour of firms closely and will act quickly to stop firms and prevent harm to consumers where we see it.’
The rising cost of living may be putting increasing pressure on insurers to control claims costs but some of the ways that insurers may look to reduce these costs could ultimately be harmful to consumers.
Attempts to control claims costs by making offers lower than the customer is entitled to under the policy is unfair and is likely to disproportionately affect consumers in vulnerable circumstances.
Customers who think their claim may have been undervalued can complain to their insurer and then to the Financial Ombudsman if their complaint is not resolved.
Firms can offer cash instead of repair or replacement to settle claims. However, settling claims in this way may sometimes not be in the consumer’s best interest if they are not able to easily arrange repairs or replace an item themselves, or if inflation means they lose out in real terms.
- make sure consumers have enough information to understand the implications of the different settlement options available to them, particularly consumers in vulnerable circumstances
- have adequate systems and controls around claims handling processes
- not incentivise their staff to engage in potentially harmful claims settlement practices
The FCA set out in a Dear CEO letter in September 2022 that it expects firms to handle claims promptly and fairly, and they should consider the impact of inflation when they cash settle claims and the likely difference in price for a consumer to replace an item or carry out repairs compared to a firm.
The FCA’s actions are part of its Strategy to deliver good outcomes for consumers in the UK’s world leading financial services industry, which has widely recognised and respected high standards.