The UK's financial regulator has uncovered several "concerns" over how the UK car insurance claims process has been handled, which caused a range of issues for drivers.
The Financial Conduct Authority (FCA) has now instructed insurance companies to enhance their claims processing procedures as troubling instances of inadequate practices across the sector have come to light.
The authority revealed persistent deficiencies in how certain insurers manage customer claims, despite broader market pressures affecting premium costs.
While the regulator’s investigation confirmed that surging insurance prices stemmed predominantly from factors beyond insurers' control rather than excessive profits, it did discover worrying patterns which required immediate attention.
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GETTY | The claims-failing saw drivers wait longer than necessary for payouts
Sarah Pritchard, the FCA's deputy chief executive, emphasised that while external pressures explain premium increases, insurers must ensure customers receive proper treatment during claims processes.
The regulator's analysis revealed that motor insurance claim expenses surged by £2.3billion between 2019 and 2023, representing a 34 per cent increase across the sector.
Vehicle repair and accidental damage claims drove nearly two-thirds of this rise, totalling approximately £1.5billion, as modern cars became increasingly expensive and complex to fix.
Average insured vehicle values jumped 42 per cent while labour costs for repairs climbed 43 per cent, compounding the financial pressure on insurers.
GETTY | The FCA revealed that motor insurance claim expenses surged by £2.3billion between 2019 and 2023
Shockingly, theft-related expenses soared by 79 per cent, adding further strain to the system alongside significant increases in hire car costs and incidents involving uninsured motorists.
The FCA also identified that fees paid to credit hire companies and claims management firms contributed to slower processing times and escalating expenses.
The watchdog uncovered multiple failings, including inadequate supervision of third-party claims handlers, leading to customer service failures, processing delays and elevated complaint levels.
Management systems proved insufficient at several firms, preventing them from quickly spotting and addressing claims processing problems and backlogs.
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Pritchard stated: "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."
She explained that the FCA is now "stepping up" to help make sure claims are handled promptly and fairly. The regulator confirmed it would directly confront firms demonstrating substandard practices and would implement enforcement measures against specific companies where required.
An interim assessment of the premium finance market also revealed that while monthly payment options provide affordability and flexibility, certain providers generate substantially higher revenues than their service provision costs warrant.
GETTY | The FCA uncovered multiple cases of car insurers failing to offer fair value to drivers
The watchdog now plans to investigate these issues further through Consumer Duty requirements, with a comprehensive report expected before the end of the year.
Hannah Gurga, director general of the Association of British Insurers, acknowledged that the FCA's investigation validates how unprecedented claims expenses have fuelled car insurance price rises.
She said: "Ensuring a smooth and stress-free claims process is crucial for customers when going through what can already be incredibly difficult circumstances.
"Our members work hard to achieve this, but we will engage with them and the regulator to understand what improvements can be made in the claims handling journey, to ensure good outcomes for customers and to support trust and confidence in the industry."