In December of last year, the Financial Conduct Authority (FCA) issued a warning to the insurance market against undervaluing cars or other insured assets when settling claims. This caution was further cemented in late June when the watchdog instructed Direct Line Group to carry out a review of total losses where vehicles have been written off in order “to identify any policyholders who received unfair settlements and provide them with appropriate redress”.
At the time, Direct Line responded to the notice, acknowledging that there were incidents where some car and van insurance customers “didn’t receive as much as they should have done” between September 1, 2017, and August 17, 2022, and pledged to identify impacted customers. Last week, it was revealed that the group is facing a £30 million redress bill, a move marking the first time a formal voluntary requirement has been agreed with a firm concerning the FCA's motor and home insurance pricing rules.
However, as emphasised by Percayso account director Kieran Fisher (pictured) in a recent interview with Insurance Business, it’s important to note that the FCA’s warning around unfair settlements is not an insurer-specific directive but rather a message for the wider market.
Fisher (pictured) cited the Q&A update delivered by the FCA’s Matt Brewis at the recent MGAA Conference where the director of general insurance and conduct specialist said he had written to the CEOs of all major insurers to clarify that this is an area of focus.
“He made it clear that not only do they need to be squeaky clean and doing the right thing going forward but also that what they’ve done in the past is going to be under scrutiny,” he said. “I think there's arguably no denying that this is the tip of the iceberg and that it's going to get a lot of focus.”
Coming from a regulatory background, having spent some time at the Financial Ombudsman Service before working directly to support insurers in helping settle claims disputes, Fisher has a birds-eye view not just of the extent of the challenge but also of its deep roots in the market. And after seven years working on the product side of the insurance equation, he said, it’s interesting to see the two worlds of regulation and solutions coming together.
“When I first got into this world and was speaking to the insurers and to the claims departments, while they weren’t saying it in so many words, it was clear it was beneficial to them to settle on, as normal, as little as possible,” he said. “It’s a bit like your mobile phone contract going up at the end of the year, they just hope people don’t question it. And if 40% of people just accept it, then that’s a bit of a win for them.
“But consumers, as a result, have been almost trained to always turn down the first offer, and negotiate hard, complain if they have to and take it up with the Ombudsman if they’re still not happy. Realistically, we never should have gotten into that position in the first place because that doesn't seem right or fair. And, as a result, we’re dealing with the consequences of that by trying to save a few pennies.”
He highlighted a recent example, where somebody crashed into the back of his mother-in-law’s car, and it took almost nine months of back-and-forth communication before she could get a like-for-like car from her insurer. Not only had the negative experience wasted her time, he said, but she now tells everyone she knows not to get insured with this provider and will never go back to being insured with them.
For the insurer itself, as well as the loss of a customer, the process has been time-consuming and costly, particularly once the operational and staffing costs of negotiating the claim have been factored in. In the grand scheme of things, he said, in these cases, insurers can be spending a lot more than they’re saving – and once this is magnified by the millions of complaints and claims out there, the impact this is having on their balance sheets becomes a clearer cause for concern.
To prove the point that doing the right thing at the outset will save money in the long run, Percayso recently ran an in-depth exercise with one of the UK's top 10 insurers. Using just VRMs (Vehicle Registration Marks) and the date, he said, the data services firm was charged with supplying a value to be compared to the cap valuation, the Glass’s valuation and the first offer the insurer gave the customer.
What was fascinating to see, Fisher said, was that initially it seemed Percayo’s valuation was coming out a bit higher but upon further analytics, and compared to the final settled figure, it was within a 0.2% range. And that was the figure determined with weeks or months of back-and-forth, Ombudsman referrals and bad feelings. Unsurprisingly, that customer is now on board.
“As well as being accurate, there’s a pretty strong piece around transparency and fairness, the FCA’s Treating Customers Fairly initiative,” he said. “And the reputational piece of this is important. The reputation of insurance is always in the spotlight but especially so now.
“I know from working with the Ombudsman and a number of insurers that they measure performance on the number of complaints, settled complaints and overturns at the Ombudsman. Engaging in this and doing the right thing at the outset will categorically reduce all of that and cut down the reputational harm impact of this, as well as the time you spend negotiating.”
There’s little doubt that insurers are responding to the wakeup call of the FCA’s recent notices, he said, and he’s seeing that first-hand in the number of established clients ringing up to discuss how they utilise Percayso’s services across a broader range of claims – as well as inquiries from potential new clients. His message to insurers considering taking steps to improve their offering is clear – “everybody benefits from fair value being offered at the outset of a claim”.
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