The financial services watchdog, the Financial Conduct Authority (FCA), has today warned insurance firms not to undervalue cars or other insured assets when settling insurance claims – particularly during the cost-of-living crisis.
In a Press release, the FCA said it has seen evidence that some consumers are being offered a price lower than their vehicle’s fair market value by their insurance providers in the event of their cars being written off after an accident. In some cases, the watchdog said, claims staff are only increasing that offer to the fair market price when a consumer complains.
The FCA clarified that offering a price lower than fair market value is not allowed under FCA rules and that it is acting against those firms that it has found breaking its rules.
Commenting 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 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 rise in the cost-of-living may be putting increased pressure on insurers to control claims costs, the FCA said, but some of the ways in which these might look to be addressed could be harmful to consumers. Making offers lower than a customer is entitled to under their policy is a key example of this – and one that is likely to disproportionately affect consumers in vulnerable circumstances.
The FCA highlighted that customers who think their claim may have been undervalued can complain to their insurer and later to the Financial Ombudsman if their complaint is not resolved. It also noted that while firms can offer cash instead of repair or replacement to settle claims, this method of settlement is not in the consumers’ best interest if they cannot easily arrange repairs or a replacement themselves. Additionally, inflation may mean they lose out in financial terms.
Therefore, the FCA advised that firms should:
The FCA established 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.
Responding to the FCA’s warning, an ABI spokesperson said: “At a time when household budgets are increasingly under pressure, insurers are doing all they can to support customers. Our members have processes in place to determine a fair market value for a written off car but we agree it’s important that policyholders trust the offer they receive.
“We’ll discuss this with our members to understand how processes are kept under review, including the information provided to customers to understand the different settlement options available to them, particularly given fluctuations in second hand car prices.”