May 14, 2024


by: kiran


Tags: "Regulation"

Are you playing fair with your insurance claims?

Key Messages:

The FCA has concerns that some consumers are being offered settlement values lower than a fair estimate of the vehicle’s market value. This has caused the FCA to conduct a review to assess firms’ claims-handling processes for valuing vehicles which have been stolen or written-off.

This follows from a warning from the FCA back in December 2022 where they told insurers not to undervalue cars and other insured items when settling insurance claims.

The main findings relate to the following areas:

Valuation of vehicles – some firms reported average settlement values that were lower than the available guide prices and when determining settlement value, most firms reported making deductions based on the pre-accident condition of the vehicle which may be unfair. The FCA reminds firms that their first offer for the settlement price of a written-off vehicle should be its best estimate and not rely on customers challenging or complaining before they increase the offer.

Communicating an initial offer – when communicating a settlement offer, the FCA remind firms that they should not dissuade customers from challenging a valuation and that under the Consumer Duty, firms’ communications with customers should help them make effective, timely and informed decisions, and support them in realising the benefits of their policy without unreasonable barriers.

Handling disputed valuations – firms should have effective processes for where a customer disputes their vehicle’s pre-accident valuation. The FCA found a variety of approaches – as above, firms should not discourage customers from disputing valuations, some firms stated they used the FOS valuation approach which appeared to be made as a reassurance to customers about the process – there is a risk that customers may think there is not prospect of a valuation increase.

Outsourcing – some firms did not have sufficient oversight arrangements over third-party providers with some firms relying on an annual audit or only reviewing complaints data. Conflicts of Interest had not been assessed. Most firms could not demonstrate that they have taken appropriate steps to assure themselves that outsourcing their claims process does not lead to systematically different customer outcomes.

Treatment of policies after a claim settlement – The FCA found that where a customer pays their premium monthly, half of the firms reviewed deducted the remaining instalments from the settlement payment rather than allow customers to continue making monthly payments of the outstanding premium – there is a risk that this approach may not deliver good outcomes for customers. Customers may not have budgeted for paying the outstanding premium in one go.
Management Information/Data Collection – Most firms did not collect basic data on total loss claims, such as the number, scale, and reasons for increases to initial settlement offers and some relied on complaints data to establish if there were systemic issues in claims processes.
Some firms did not monitor the average deviation between vehicle valuations and their corresponding guide prices.

Good Practice
It is worth noting that the FCA also highlight a number of areas of good practice in the areas referenced above, such as not offering incentives to claims handling staff that may encourage them to depress vehicle valuations, and most firms gave customers the opportunity to substitute the vehicle on their policy for the remaining term after a claim allowing customers to continue to access policy benefits.

As well as this, where a firm issues a revaluation and the customers also rejects this, most firms automatically treated the case as a complaint. The FCA highlights this as good practice as repeating the valuation process beyond this may lead to a protracted valuation dispute process. Customers may then get tired of the process and be discouraged from challenging their settlement with the firm or taking it to the Financial Ombudsman.

What Firms need to consider:

Firms should be handling claims promptly and fairly in line with the obligations in ICOBS and those in relation to the Consumer Duty. For firms who handle claims, this should have been a particular area of focus in their Consumer Duty work as it has the potential to lead to poor customer outcomes and cause customer harm.

It is recommended that a gap analysis is conducted in order that firms can evidence that they have reviewed these topics and to determine and implement any changes to their own claims handling arrangements which will help to deliver good outcomes for customers.

The FCA will be continuing to engage with firms to ensure they have addressed their findings, and they expect firms to be able to demonstrate how their valuation approach and broader total-loss claims handling processes reflect their above findings. Should you need any help in this area, please do not hesitate to contact the Padda Team.