The UK’s financial regulator has said thousands of motorists will receive compensation after suffering wrongful insurance payout deductions in the latest blow to the wider automotive sector.
Shutterstock.com/GreentellectStudio
The Financial Conduct Authority (FCA) today revealed that more than 270,000 motorists will receive compensation after finding insurers had short-changed them on stolen or written off vehicle claims by assuming pre-existing damage in some cases and making automatic deductions to payouts.
While insurers’ handling of the historic claims breached UK rules, the regulator said they have since overhauled their processes to comply with the Consumer Duty, which came into force in 2023 and requires firms to deliver good outcomes for consumers.
Around £129 million has already been paid out to almost 150,000 motorists. Admiral, which holds around a 15% market share, said it had set aside £50 million for compensation in August.
It comes after the FCA warned insurers not to undervalue cars when settling claims and set out fresh expectations for firms handling claims in December 2022.
Holman Fenwick Willan partner Bob Haken told Lexology PRO the announcement will not be welcome news for the insurance industry but will not be surprising, given an FCA review last year.
The regulator’s March 2024 multi-firm review covered 90% of the market and highlighted the specific problematic practice of making a low offer with a view to increasing it if the customer complains which, Haken said, is not consistent with the Consumer Duty.
Significantly, Haken said the announcement makes clear the FCA is adopting a “more interventionist approach” in the market.
The wider motor sector was dealt a separate blow in August when the UK Supreme Court upheld a complainant’s claim of an ‘unfair relationship’ with a car dealer under the Consumer Credit Act, which has opened the door to potential payouts of between £9 and £18 billion. But lenders were dealt a reprieve as the court simultaneously found dealers do not owe customers a fiduciary duty, blocking a potentially catastrophic £44 billion industry payout.
The FCA is expected to consult on an industry-wide redress scheme in October.
While affecting separate participants in the motor industry, the combination of the Supreme Court judgment and today’s announcement could affect the role dealerships play in the distribution chain, Haken said. Insurance products, like financing arrangements, are often sold by dealerships, he noted, adding that the two developments will potentially disrupt the relationship between insurers and dealerships.
FCA deputy chief executive Sarah Pritchard confirmed insurers will contact motorists if they are owed compensation – customers do not need to do anything, Pritchard said. If a motorist is dissatisfied with how their claim has been handled, they can seek recourse through the Financial Ombudsman Service, the UK’s consumer complaints handler.