Cost of Living: good and poor practice in the general insurance market

We identified some issues around claims handling and the identification and recording of potentially vulnerable customers across firms.

The time taken to assess claims varies considerably and we saw examples where the time taken to resolve a claim was significant. We found too that the volume of complaints relating to claims handling and the number of rejected claims is increasing.

Overall, the increase in customers abandoning claims appears to be minimal, but it is a trend we will be monitoring.

Some firms indicated an increase in fraudulent/exaggerated claims and anticipated that this trend may increase over the coming year.

We are concerned that a number of our firms were unable to provide data to demonstrate the number of vulnerable customers receiving support. We saw significant variation in how firms identified financially vulnerable customers. We also saw examples where policies were sold through chains of firms, where it was not clear how each firm had considered their own approach to vulnerability.

Some firms were not yet able to demonstrate that they have effective information to monitor consumer outcomes. In particular, we noted that more work is needed to ensure good flows of information between intermediaries and manufacturers. Under the Consumer Duty, which comes into force at the end of July, firms will need to identify relevant sources of data to enable them to assess whether the outcomes that their customers are experiencing are consistent with their obligations.

In the summary of key trends and findings section below, we have included examples of good practice and poor practice. These aim to help all firms meet our expectations, so customers benefit from better outcomes.

Firms should also consider these examples in the context of their preparations for the new Consumer Duty. The extent to which our expectations are not being met varied between the firms in our sample. We have provided feedback to individual firms about the poor practices and told firms to address it. All firms are aware that we have a full range of regulatory tools at our disposal if necessary remedial action is not undertaken.

The ABI has recently published information which is helpful to consider in relation to our work.  This has shown premiums are on the rise, albeit for property this is below the cost of inflation. In Q1 2023, ABI data showed home insurance premiums are up 6% and motor premiums up 16% year on year.  For motor, premiums have now returned to pre pandemic levels (when premiums reduced due to lower vehicle usage). According to the ABI, this reflects above-inflation cost pressures (paint and materials up 16%, courtesy car costs up 30% and second-hand cars up 30%).This adjustment of premiums is linked to UK motor and home insurers being expected to make losses in 2022 and 2023. 

These increases impact consumers already struggling with the cost of living. Premium increases can also have a disproportionate impact on the consumers who are already struggling with their finances the most.

We therefore remind firms to ensure their products are providing fair value for all consumers and that they support customers in financial difficulty. We also encourage, consumers to shop around for the best insurance (both price and coverage).

Our questionnaire was sent to 11 firms representing 35% of the motor and 53% of the buildings & contents insurance markets. We received data for the period between August and November 2022 compared to the 2021 12-month averages.

1. Cancellations due to non-payment of premiums are low and stable

Generally, customer cancellations due to unpaid premiums remained low across our firm sample (less than 1% of total policies in force for home and motor). However, this is a trend we will be monitoring due to the potential for harm if increased numbers of customers start to experience financial vulnerability. Most firms ensure that a range of communication methods are used to engage customers whose policies have been cancelled due to non-payment of premiums.

However, looking beyond home and motor insurance, our financial lives survey shows that 8% of UK adults with insurance had cancelled one or more policies since May 2022 – mainly in extended warranty, pet, gadget and mobile phone insurance.  

The ABI data in relation to policy volumes in each category shows volumes are stable for motor and down 6% for home year on year. A possible explanation for this is there were fewer houses purchased in 2022 (due to a slowdown in Q4 around market turmoil) vs 2021 (when there was a rebound in volumes post covid).

2. Proportion of policies paid by monthly instalments also stable

The proportion of policies paid in monthly instalments has remained broadly stable compared to 2021. In line with our message in our Consumer Duty Dear CEO letter, some firms stated they are reviewing the cost of premium finance to ensure it is more reflective of the cost of the service and carries low credit risk. We encourage those firms not already doing so to consider this.

3. Examples of lengthy claims handling times

From the data submitted, we noted large variations in the average time taken by firms to resolve claims in both home and motor.

Having followed up with firms it is clear these averages do not represent the time it takes to pay a customer for a typical household or motor related repair. The variations were largely due to:

• the increasing length of time it takes to agree settlement terms with third parties and close all aspects of a claim;
• settlement times for home insurance customers can be lengthy for certain more complex claims - such as flood and subsidence for Home and bodily injury for Motor.
• delays for motor insurance customers at claim stage due to sector-wide challenges around a lack of available courtesy/hire cars and the supply of car parts

It is important to note that these delays can affect customers’ renewal premiums, so some customers may suffer financial detriment at renewal.

4. Volumes of claim complaints increasing

Claim complaints are increasing both in overall number and as a proportion of claims.

Firms told us that seasonal issues such as flooding or extreme cold were factors for claims being handled more slowly or claims not being covered by the policy.

During our calls with firms, it was explained that rising claims costs, supply chain issues and general communication issues, such as long call wait times, have contributed to rises in claim complaint volumes. We also note that motor usage was lower during 2021 due to periods of lockdown.

That said we remind firms of the need to deal with claims and complaints fairly and promptly.

5. Rejected claims also increasing

Rejected claims are increasing across both home insurance (up c.57%) and motor insurance products (up c.24%) over the four-month period from August to November 2022. Firms explained this was largely a result of customers making claims for things they are not covered for. One example of this would be claiming for accidental damage when they have not purchased extended cover. Some firms suggested that the solution to this is to educate customers about their options at the point of sale.

We reminded insurers of their obligation when advising customers to understand a customer’s demands and needs and only offer products that are in line with them.

6. Customers abandoning claims

The increase in customers abandoning claims appears to be minimal over the period August to November 2022. However, it is a trend we will be monitoring. There appeared to be some discrepancies in recording between firms in the data submitted, due to different claim definitions and interpretations of customers ‘walking away’ from claims.

7. Much more to be done on the identification of vulnerable customers

Some firms in our sample were unable to demonstrate how they effectively identified vulnerable customers, and for both home and motor insurance some firms provided very low numbers recorded on their systems as such.

We have recently consulted on guidance for insurance and premium finance for customers in financial difficulty. We expect to publish the final guidance shortly.

For customers whose policies have been cancelled due to non-payment of premiums, most firms ensure that appropriate alternative payment options are offered that will not allow debt to remain in place beyond renewal stage. Some examples of good practice included:

• waiving fees and excesses;
• adjusting payments;
• offering payment holidays for up to 12 weeks;
• actively inviting customers to speak to the firms if their circumstances had changed;
• setting up a customer support hub; and,
• the removal of mid-term adjustment fees.

We observed firms typically allowing 1–2-month forbearance before cancelling a policy and some waive cancellation fees when doing so.

Some firms use voice analytics and provide specialist training to help identify vulnerable customers.

Some have dedicated sections on their websites that offer specialist support to those most vulnerable during the rising cost of living. Most of the firms in our sample offered various means to support financially vulnerable customers, both financial and non-financial.

Some firms increased the level of quality assurance of calls where a vulnerable customer has been identified.

Some firms have taken steps to minimise the financial impact to customers who have a claim open at renewal.

One of the most common causes for complaints to motor insurance firms was claim settlement figures. We have seen evidence that some consumers who have had their cars written off after an accident are being offered a price lower than the vehicle’s fair market value, and this is only increased following complaints.

Offering a price lower than fair market value is not allowed under FCA rules.

We are taking action against those firms we who may have broken our rules.  

Firms should refer to our December 2022 publication warning insurance firms against undervaluing cars and other insured items in insurance claims.

Some firms indicated challenges with providing information related to financial support being provided to customers. Therefore, responses were made on a best endeavours basis, or nil returns only were included for submission.

Several firms struggled to provide outstanding information in a timely manner, indicating poor flows of information between intermediaries and manufacturers.