The Financial Conduct Authority (FCA) has stated that while external cost pressures are the main drivers behind rising motor insurance premiums, there remain issues with how some insurers are managing claims.
The regulator’s analysis found that increases in the cost of motor claims – driven by higher prices for vehicles, parts, labour, energy, and the complexity of vehicles and supply chains – have played a significant role in pushing premiums higher.
In addition, the FCA noted an increase in the cost of hire vehicles, as well as a rise in the frequency and cost of theft claims and claims involving uninsured drivers. According to the FCA, these rising costs, which are largely outside the control of insurers, rather than increased profits, have been the primary factor behind recent premium hikes.
However, the regulator also identified that referral fees paid to credit hire firms and claims management companies were contributing to delays in claims handling and higher costs.
Supporting these findings, consumer group Which? reported last year that 48% of motor insurance claimants experienced at least one issue during the claims process. Of those affected, 31% said the handling of their claim increased their stress levels, while 10% indicated it had an impact on their physical health.
Sarah Pritchard (pictured above), deputy chief executive of the FCA, said insurance should give people confidence that they will be treated fairly when making a claim.
“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, particularly in home and travel. 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,” Pritchard said.
In the home and travel insurance sectors, some examples of effective practices were observed, but the FCA also reported several concerns. These included a lack of oversight over outsourced claims functions, leading to delays and a high volume of complaints.
Some firms were found to lack adequate management information, which affected their ability to identify and address claims handling problems promptly.
The FCA also noted that only 32% of storm damage claims submitted to a sample of insurers in 2024 resulted in a payout. In some cases, cash settlements were issued without properly assessing whether they were the most appropriate option for customers.
Separately, the FCA has flagged persistent concerns around how some insurers value written-off or stolen vehicles. Its review identified inconsistent valuation practices, with certain insurers initially offering lower settlements and only adjusting the figures following customer complaints or escalations.
The regulator has also reiterated earlier warnings on the treatment of vulnerable customers. It previously found that some firms had failed to monitor outcomes for these customers adequately or ensure that the support provided matched individual needs.
In such cases, customers at higher risk – including those with physical or mental health challenges – may not receive the same level of service or consideration in settlement decisions, raising regulatory concerns under the Consumer Duty framework.
Where deficiencies have been found, the FCA said it is engaging directly with the firms involved and is taking enforcement action when needed.
The regulator is also contributing data to support coordinated action between government, industry and other regulators through the government’s motor insurance taskforce. This joint effort aims to help curb premium increases, although the FCA acknowledged that it will not eliminate them entirely.
The FCA also provided an update on its pricing reforms, reporting that the measures are working as intended by reducing the price differential between new and existing customers in the motor and home insurance markets. The reforms were introduced to stop the practice of price walking, in which long-standing customers were charged more than new ones at renewal.
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