FCA flags rising motor premiums and ongoing claims handling concerns

The Financial Conduct Authority (FCA), the UK’s financial regulator responsible for overseeing the conduct of nearly 50,000 firms, has stated that the recent surge in motor insurance premiums is largely the result of factors outside insurers’ control.

At the same time, it has raised concerns over the way some insurance firms are handling customer claims, particularly in the home and travel sectors.

The FCA’s analysis shows that rising costs associated with repairing and replacing vehicles—including increases in car prices, spare parts, labour, energy, and more complex vehicle technology—have all contributed significantly to the upward trend in motor premiums.

The regulator also pointed to a rise in the cost of hire vehicles, more expensive theft-related claims, and a growing number of incidents involving uninsured drivers. These findings support the view that the primary driver of premium increases is external cost inflation rather than insurers seeking higher profit margins.

However, the regulator found that certain industry practices are adding further strain. In particular, it noted that referral fees paid to credit hire companies and claims management firms were linked to slower claim processing and inflated costs, ultimately to the detriment of consumers.

In its broader review, the FCA found some examples of responsible practices, especially in home and travel insurance. But it also uncovered issues that could lead to poor outcomes for policyholders. These included inadequate oversight of outsourced claims services, resulting in delayed settlements and a high number of complaints.

Many firms were found to lack effective management information systems, which prevented them from identifying and fixing issues quickly.

In addition, only 32% of storm damage claims submitted to a sample of insurers in 2024 resulted in a payout—raising concerns about high rejection rates. The FCA also found that some insurers relied too heavily on offering cash settlements without properly considering whether this was the best option for the customer.

Where the FCA has identified poor practices, it is taking action directly with the firms involved and, where necessary, using its enforcement powers.

The regulator is also feeding its findings into a broader Government-led taskforce aimed at reducing motor insurance costs. While the FCA acknowledges that this work could help manage future price increases, it warns that it cannot completely prevent them due to ongoing external cost pressures.

Also released today was an interim update from the FCA’s ongoing review of the premium finance market—where customers pay insurance premiums in monthly instalments. While this can help spread costs and make insurance more accessible, the regulator found that some firms are earning much more than it costs them to provide this service.

The FCA plans to explore these concerns further in the next phase of its study and will address any unfair practices it identifies under its Consumer Duty framework. A final report is expected by the end of 2025.

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.

“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.

“A well-functioning insurance market helps consumers navigate their financial lives and supports growth by building people’s resilience to financial and personal shocks.”

The regulator also confirmed that its pricing reforms—designed to stop “price walking,” where long-standing customers are charged more than new ones—are working as intended.

Its review found that the gap between new and renewing customers has narrowed in both motor and home insurance markets, confirming that the changes are having a positive effect on pricing fairness.

This website states: The content on this site is sourced from the internet. If there is any infringement, please contact us and we will handle it promptly.