FCA updates on insurance market

What does this mean?

Premium Finance

The FCA’s market study focused on fair value and competition for consumers.Concerns were raised about the fairness of premium finance, with the FCA highlighting that nearly 20% of consumers pay over 30% APR. In addition, the FCA wants to enhance the transparency of premium finance, ensuring better value and more informed choices for customers. 

Motor Insurance Claims Analysis

Since 2019, UK motor claims costs have risen by 34%, which the FCA finds is due to increased accident and property damage expenses, pricier vehicles, longer repair cycles, and higher parts and labour costs. Though claim frequency has decreased and premiums have risen 40%, they still lag behind inflation.

Concerns were also raised about the fairness of premium finance and indications that market competition may not be functioning effectively. It presents a pivotal moment for firms to critically evaluate and ensure that the pricing of insurance products genuinely reflect their delivered value.

Home and Travel Claims

The FCA undertook a review of claims handling arrangements among home and travel insurers, identifying both good practices and areas for improvement. 

Firms should assess their claims handling processes and customer journeys to identify areas for improvement in the following key areas:

• Improve Claims Handling - improvements are required where firms lack control over outsourced arrangements and have poor clarity in customer communications, particularly regarding storm coverage. This could should consistent MI to enable robust oversight of outsource providers. 

• Claims Oversight - firms should consider if they are making effective use of MI to monitor claims trends, customer vulnerabilities, and overall performance, in order to better manage operational and conduct risks.

• Customer-Centric Approach - claims handling processes and policies should be customer-centric. Firms should consider to what degree the claims processes primarily focus on customer outcomes and consistently deliver good outcomes.The FCA provided individual feedback to some firms who should act on the feedback provided. Other firms should review the guidance and take action where appropriate.

GIPP Evaluation

The FCA’s evaluation of its GIPP remedies found that ongoing compliance costs were higher than it initially assessed, and implementation costs disproportionately impacting smaller firms. 

The initiative has contributed to lowering motor insurance prices, as pricing practices have improved, albeit with isolated price discrimination cases mainly due to technical errors or valid reasons. 

But product quality findings are mixed, and while average payouts and the number of covered perils remain stable, suggesting consistent product quality, the rise in compulsory excess in the motor market hints at a potential decline. The FCA concluded that overall improvement in product quality after GIPP remedies was inconclusive.

What do firms need to do?

Firms should methodically review the FCA’s findings and consider whether there are specific actions they need to take. Overall these publications have identified that more work is needed to improve claims and pricing practices to deliver better, consistent outcomes for customers.

Premium Finance: Firms should conduct reviews of their higher-priced insurance products to ensure they provide fair value, especially for vulnerable customers, and that the pricing is aligned with the value provided. In addition the annual Consumer Duty Board report should consider how firms are meeting the requirements for fair value and customer harm.

Motor Insurance Claims Analysis: Firms should:

• Review the incentives for AMC/CMC firms, review and challenge excessive third-party charges, consider credit-hire caps or limits, and direct customers to cheaper courtesy cars. 

• Increase data-sharing practices to combat fraud, particularly addressing the increasing use of AI-generated imagery in fraudulent claims, and review policy wordings, especially for wear-and-tear and storm damage, to ensure customer understanding of what is covered.

• Evaluate the governance of claims handling, especially in outsourced operations, to identify if enhancements are needed to manage risks and deliver good customer outcomes. 

• Use the Consumer Duty monitoring MI to track quality indicators and trends, ensuring that payouts and covered perils remain appropriate.

• Evidence how the pricing is proportionate to the value delivered to customers and should proactively address any discrepancies in pricing and value.

• Review the pricing strategies and product offerings to align with regulatory expectations to deliver fair value.

Home and Travel Claims: Firms should undertake a review and revision of policy wordings, particularly concerning wear-and-tear and storm damage, ensuring communications are clear and understandable for customers.

It’s important for firms to critically assess their control and monitoring of cash settlements to ensure they are in compliance with the Consumer Duty rules, with particular attention to the needs of vulnerable customers. The aim should be for firms to enhance transparency, ensure fair customer treatment, and align with regulatory expectations.

GIPP Evaluation: Firms should work on better handling the consequences that come from implementing GIPP solutions, aiming to reduce compliance costs while enhancing pricing practices and product quality. This involves reviewing current compliance strategies to ensure they are efficient, especially in light of costs that may have exceeded initial expectations.

It is expected that as part of meeting the Consumer Duty obligations firms continually identify and rectify any issues, providing valid explanations for instances of price discrimination to ensure fair pricing practices are upheld.

Furthermore, firms should consistently monitor product quality indicators, striving to maintain stable payouts and coverage of perils while addressing any potential declines in overall product quality. This proactive approach will help in maintaining consumer trust and compliance with regulatory standards.

Next steps

Premium Finance: The FCA will undertake supervisory and enforcement action against firms whose practices do not comply with fair value principles or existing regulations such as the PROD, ICOBS and the Consumer Duty.

Home and Travel Claims: The FCA is providing firm-specific feedback and is prepared to take action if issues persist.

GIPP Evaluation: In June 2025, the FCA initiated a consultation on decommissioning the REP022 Attestation return and plans to gather industry input on proposals to enhance reporting efficiency, potentially including the retirement of additional returns.