The Financial Conduct Authority (FCA) has revealed that 270,000 UK motorists are set to receive compensation after insurers were found to have unfairly underpaid claims on stolen or written-off vehicles. The total payout is £200 million, with each eligible driver expected to receive an average of £740.
This announcement follows a thorough investigation by the FCA, which uncovered issues in how insurers handled certain claims. Specifically, some firms had been making automatic deductions for alleged pre-existing damage, which adversely affected the settlements received by careful drivers. These motorists, who had well-maintained vehicles, were left struggling to replace their cars on a like-for-like basis. With the issue now addressed, insurers have begun rectifying their processes in line with the FCA’s Consumer Duty regulations.
Unfair Claims Practices and the FCA’s Role
According to the FCA, nearly 150,000 drivers have already been compensated, receiving £129 million in total. This is part of an ongoing effort to address discrepancies in the valuation and settlement processes for motor insurance claims. In December 2022, the regulator issued a stark warning to insurers, urging them to revise their claims practices and to stop undervaluing cars when settling claims.
Sarah Pritchard, the FCA’s Deputy Chief Executive, emphasised that her organisation would continue to step in whenever consumers were not treated fairly, ensuring that insurance payouts reflect the true value of a vehicle. She added that changes to insurers’ claims processes had already been implemented, and these improvements meant that affected drivers were now receiving what they were rightfully owed. The FCA confirmed that insurers would be directly contacting eligible policyholders, with no need for consumers to take any further action unless they were dissatisfied with how their claims were handled.
How the Compensation Will Be Delivered
The compensation process will be managed by the insurers themselves, with drivers receiving communication regarding their eligibility. If policyholders feel that their claim has not been adequately addressed, they are encouraged to first raise the matter with their insurer. Should the matter remain unresolved, customers can escalate their complaint to the Financial Ombudsman Service (FOS), which has the power to investigate and offer a binding resolution.
This comes after the FCA’s detailed review of the motor insurance sector, which in 2023 led to Direct Line Group being required to reassess five years of claims. The regulator’s actions have brought about necessary changes in the insurance industry, particularly around vehicle valuations, ensuring fairer treatment for all policyholders.
By focusing on transparency and consumer protection, the FCA is aiming to restore confidence in the insurance market, ensuring that motorists are not short-changed in the event of a claim. This settlement represents a crucial step in holding insurers accountable and protecting drivers from unfair practices.
