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Highlights

  • FCA attributes rising motor insurance premiums to external cost pressures, not insurer profits.

  • Issues identified in claims handling include poor oversight, high storm damage rejections, and slow resolution.

  • Regulator explores fairness of premium finance arrangements; final findings expected by end-2025.

The Financial Conduct Authority (FCA) has published a comprehensive update on the UK insurance sector, revealing that rising motor insurance premiums are being driven predominantly by external cost pressures. At the same time, the regulator highlighted areas of concern regarding claims handling practices, especially within the home and travel insurance markets.

According to the FCA’s analysis, several factors outside of insurers’ direct control have contributed to increased premiums in the motor sector. These include higher prices for vehicles, parts, labour, and energy, alongside the impact of increasingly complex vehicle systems and supply chains. The cost of hire vehicles, a growing volume of theft-related claims, and an uptick in uninsured drivers have also played a significant role. The findings indicate that cost inflation, rather than rising insurer profits, is the leading cause of higher premiums.

However, the FCA identified problems linked to the use of referral fees by credit hire firms and claims management companies. These were associated with delays in claims processing and an overall increase in settlement costs.

In the home and travel insurance sectors, the FCA's assessment uncovered several shortcomings in how claims are managed. These included weak oversight of outsourced claims handling, resulting in delays, poor outcomes for customers, and high complaint volumes. Many insurers were found to lack robust data systems, preventing timely identification and resolution of claims-related issues. Additionally, the FCA flagged the high rejection rate for storm-related claims—only 32% of claims in a 2024 sample resulted in a payout. Another concern was the use of cash settlements, which were sometimes offered without clear consideration of their suitability for the customer.

Where poor practices were identified, the FCA is engaging directly with the firms involved and taking corrective measures where needed. The regulator is also contributing to the Government’s motor insurance taskforce, supporting a coordinated approach to help limit future premium increases, although it acknowledged that it cannot eliminate them altogether.

An interim update was also released on the FCA’s ongoing market study into premium finance. The study is examining whether consumers who choose to pay for insurance in monthly instalments are receiving fair value. While this payment option can enhance affordability and flexibility, the FCA found that in some cases, firms are generating revenue significantly above the actual cost of providing the service. These concerns will be further explored in the next phase of the study, with a final report expected by the end of 2025.

Sarah Pritchard, Deputy Chief Executive at the FCA, emphasised the importance of fair treatment for consumers across the insurance industry. 

The FCA also reaffirmed that its pricing reforms, aimed at eliminating “price-walking”—where existing customers are charged more at renewal—are achieving their intended effect. The regulator’s evaluation showed a narrowing price gap between new and renewing policyholders across motor and home insurance products.