Ombudsman complaints reveal insurers are still struggling with claims

Although the UKGI market often describes claims as the shop window of the insurance industry, this part of the sector still struggles to meet customer expectations, frequently leaving policyholders staring into a shopfront clouded by delays and frustration.

This issue remains a serious one. According to the latest analysis of Financial Ombudsman Service (FOS) complaints data by market intelligence firm Insurance DataLab, conducted in January 2025 and published exclusively by Insurance Times, almost 30,000 claims related complaints were referred to the ombudsman in the 12 months to the end of September 2024 – this equates to 71% of all insurance complaints over this period.

In comparison, there were less than 10,000 admin related complaints in the year to September 2024, amounting to 22% of all insurance complaints, and a little over 2,600 complaints about sales or advice, totalling around 7% of overall insurance complaints in this period.

While complaints to the FOS across all areas fell slightly during the third quarter of 2024, this volume remains above levels experienced in previous years.

Claims complaints also had the highest average upheld rate over this reporting period, with the FOS finding in favour of the customer in 42% of cases, highlighting the need for insurers to address shortcomings in their claims handling processes.

This figure compares to an upheld rate of just 25% for complaints about sales or advice and 36% for admin related complaints.

Insurance DataLab co-founder Dan King said these numbers indicate how much work still needs to be done to improve claims handling across the industry.

“Claims are the most visible part of the insurance process for customers and it is clear from the volume and nature of complaints that insurers need to prioritise this area,” he explained.

“Whether it’s delays in resolving claims, poor communication, or disputes over decisions, these issues are eroding trust in the industry.

“The fact that more than 40% of claims complaints are upheld in favour of the customer should serve as a wake-up call across the industry. It shows that many of these grievances could potentially have been resolved earlier, without the need for escalation to the ombudsman.

“Not only [would earlier intervention] lead to better outcomes for customers, but it could also help to boost loyalty and strengthen insurers’ reputations in an increasingly competitive market.”

But which business lines are giving insurers the biggest headaches when it comes to delivering good customer outcomes? And could certain classes be facing greater regulatory scrutiny as we move through 2025?

Complaints volume

Over the five years to the end of September 2024, more than 192,000 insurance complaints have been referred to the ombudsman.

Despite this large volume of complaints about the insurance industry, the overall longer-term picture has improved slightly, with complaints volumes falling in each of the last three quarters. This includes a 9% year-on-year decrease over the course of Q3 2024.

However, a rise in complaints in 2023 means that the number of complaints referred to the FOS in Q3 2024 is still higher than the same period in both 2021 and 2022.

Unsurprisingly given the size of the market, motor insurance tops the list of the most complained about insurance products, with more than 60,000 complaints referred to the FOS in Q3 2024 – equal to 32% of total insurance complaints and more than double any other business line.

The second most complained about business line is buildings insurance, with 16% of insurance complaints in the third quarter of last year, followed by travel insurance (11%), home insurance (8%) and home emergency insurance (6%).

Upheld rates

In addition to looking at the volume of complaints, it is also important to analyse upheld rates – the proportion of complaints that are upheld in favour of the customer.

Of the business lines that have received more than 1,000 complaints over the last five years, building warranties had the highest average upheld rate over that period at 41%.

Meanwhile, household warranties had the second highest upheld rate at 40%, followed by travel insurance (39%), home emergency insurance (38%) and gadget insurance (37%).

Reassuringly only two of these lines – travel insurance and home emergency insurance – are in the top 10 most complained about business lines.

The business lines with the lowest upheld rates, meanwhile, are personal accident insurance (13%), private medical and dental insurance (19%), legal expenses insurance (22%), business protection insurance (23%) and mobile phone insurance (28%).

Wider challenges

Looking deeper into the FCA’s own value measures data, most recently published in August 2024, there are further areas of concern that the industry should be looking to address alongside complaints.

These measures provide a clear benchmark for insurers, not only highlighting underperforming business lines, but also helping to identify systemic issues that insurers need to address to meet the regulatory requirements of Consumer Duty. This regulation came into force from July 2023 to safeguard good customer outcomes.

Business lines such as personal accident insurance, motor excess protection, home emergency insurance, key cover and payment protection insurance – as well as guaranteed asset protection (Gap) insurance, which notably had sales temporarily suspended by the FCA in February 2024 – all have claim payout rates of less than 30%.

This is the threshold that many compliance experts believe the FCA considers an unofficial minimum.

Claims frequencies for many products remain concerning too, often hovering in the low single digits.

Certain business lines also experience notably low claims acceptance rates, with some of the poorest performing lines seeing fewer than two-thirds of claims approved by insurers.

And this issue isn’t confined to smaller business lines.

Before the event legal expenses for home insurance, which has the lowest claims acceptance rate at just 57%, also ranks among the top 10 business lines in UK general insurance for policies in force.

Travel insurance is another major business line that has low levels of claims accepted, with all types of travel products featured in the 10 poorest performing business lines for claims acceptance rates.

Room for improvement

The challenges facing the insurance industry in claims handling are clear and pressing.

While efforts have been made to improve processes in claims, the figures from both the FOS and the FCA’s value measures indicate that there is still significant room for improvement.

And King observed that the stakes are high for insurers.

He said: “Poor claims handling not only risks damaging customer trust and attracting regulatory scrutiny, but it can also erode market share in what is an already highly competitive landscape.

“As 2025 progresses, the insurance industry must take these lessons to heart.

“By leveraging data driven insights to identify problem areas, improving claims handling processes and ensuring fair and timely resolutions, insurers have an opportunity to rebuild trust and demonstrate their commitment to delivering good customer outcomes.

“The question is whether the industry will rise to meet this challenge or risk losing the confidence of customers who expect more from their insurer.

“Rebuilding this trust starts with putting the customer at the heart of the claims process.”