FCA identifies ‘areas for improvement’ in insurers’ valuation of vehicles

The FCA has identified “areas for improvement” in insurers’ valuation of vehicles following total loss claims.

In the results of a multi-firm review into the claims handling processes of insurers following stolen or written-off vehicle claims, the regulator noted that “some firms” reported average settlement values that were lower than available guide prices.

It explained that while the review did not examine individual cases, the low average settlement figures indicated that some customers’ claims had been “handled unfairly”. 

The FCA said: “We remind firms that attempts to control claims costs by making offers lower than the customer is entitled to under their policy is a breach of ICOBS 8.1.1R(1).”

The Insurance Conduct of Business Sourcebook (ICOBS) contains rules that specify how insurers should act with regard to their customers. 

The regulator added: ”When determining settlement value, most of the [surveyed] firms reported making deductions based on the pre-accident condition of the vehicle, which we consider may be unfair in some cases.

“Firms should ensure deductions from guide prices reflect the evidence available and can be robustly justified, rather than make blanket deductions of set amounts or percentages without sufficiently considering the individual vehicle.” 

Another area for improvement identified by the FCA involved a practice wherein insurers would make a first offer for the settlement price of a written off vehicle that was below its market value, with “the expectation that they would then increase the offer if the customer challenged the original one or complained, even if the customer provided no additional information”. 

The survey was sent to 12 firms that make up an estimated 70% of the market and also assessed these companies’ oversight and control procedures, as well as how far they monitored the outcomes of total loss claims. 

Best practice

Under the FCA’s flagship Consumer Duty regulation, which came into force in July last year, insurers are expected to place consumers at the heart of all business procedures. 

In the publication of the results of the multi-firm review, the regulator explained that it expects “firms’ processes for valuing vehicles to identify a fair estimate of their market value”. 

It added: “Under the Consumer Duty, firms should support customers in realising the benefits of their policy without unreasonable barriers – an example of a barrier could include a firm making low initial offers in anticipation of negotiation with customers.” 

In advice to the sector, the FCA indicated what constituted good practice and praised some elements of the market. 

In terms of good practice, the regulator said: “Some firms offered, on average, settlement values closely aligned to retail guide prices. Where firms’ average settlement values are in line with relevant retail guide prices this is likely to indicate firms are delivering outcomes in line with our rules.”

It added: ”All the firms we reviewed used retail transacted valuation from one or more of the trade guides used by the Financial Ombudsman Service to identify the indicative value of vehicles.”

The regulator added that it would continue to “directly engage” with the firms included in its review to ensure its findings were addressed and would also engage with firms more generally to ensure they are “able to demonstrate how their valuation approach and broader total loss claims handling process reflect the expectations we have outlined”.