Insurance industry overhaul after firms slapped with 'super-complaint' - what does it mean for you?

The FCA said it would strengthen oversight of claims handling and require firms to provide clearer information so customers better understand the protection they are buying.

Which? told the regulator that both sectors were fundamentally flawed and warned that making a claim can be more distressing than the original incident that led to it.

Consumer organisations said the response should mark the beginning of wider reform across the insurance industry rather than a final outcome.

Super-complaints are a rare regulatory tool and can only be submitted when consumer bodies believe industry-wide practices are causing significant harm to large numbers of people.

Which? structured its complaint around three core areas of concern within the insurance market.

First, it raised concerns about how claims are handled, highlighting that many insurers outsource this work to third-party administrators.

Second, the organisation criticised sales practices across the sector, arguing they leave customers confused about what is and is not covered by their policy.

The third strand of the complaint focused on the FCA itself, with Which? claiming the regulator had failed to provide sufficient consumer protection.

Disputes over storm damage remain one of the most common sources of conflict between insurers and policyholders.

Millions of people across the UK take out insurance policies each year in the hope they will never need to make a claim.

Around 22 million home insurance policies were active last year, with consumers paying more than £7billion in premiums.

During the same period, almost 900,000 home insurance claims were made, resulting in payouts of £3.2billion.

The travel insurance market accounted for more than 6.8 million policies, generating £1.2billion in premiums from customers.

About 600,000 travel insurance claims were submitted, with insurers paying out more than £400 million.

Which? said there was a clear difference in outcomes for customers depending on the type of insurance they held.

The organisation found that home and travel insurance claims were far less likely to be accepted than claims linked to motor or pet insurance.

FCA data from 2024 showed that 99 per cent of motor insurance claims were approved.

By comparison, only 80 per cent of standalone single trip travel insurance claims were accepted.

Home contents-only insurance performed worse still, with just 74 per cent of claims approved.

The regulator said these gaps were partly explained by customers misunderstanding the limits and exclusions within their policies.

The FCA said the disconnect between expectations and policy wording was a key driver of poor consumer outcomes.

Graeme Reynolds, the FCA’s director of competition, said the regulator would expand its existing work programme to address the issues.

Mr Reynolds said: "We will continue to hold firms and their senior leaders to account for making improvements, to help build trust and make sure people get fair value insurance".

The Association of British Insurers said improving claims handling was a top priority for the industry.

Consumer groups said the regulator must now follow through with meaningful enforcement.

Rocio Concha, Which?’s director of policy and advocacy, said: "These issues have been allowed to fester for years, so the FCA must now seize the opportunity to take strong action to stamp out widespread bad practice and issues with how the markets are working".

James Daley, managing director of Fairer Finance, said: "The insurance market is caught in a race to the bottom on price, leading to the hollowing out of products, as well as poorer claims experiences".

The FCA said it would provide further updates as its work on claims handling and policy transparency continues.