FCA to clamp down on insurers avoiding fair value claim payments

The insurance industry has reacted to accusations from the FCA that some underwriters are looking to avoid paying the market price for vehicles and other goods as inflation continues to impact costs.

The regulator said it had seen evidence that some consumers who have had their cars written off following an accident are being offered a price lower than the vehicle’s fair market value by their insurance providers.

It added that, in some cases, claims staff are only increasing that offer to the fair market price when a consumer complains.  

Sheldon Mills, executive director for consumers and competition at the FCA, explained: “When making an insurance claim, people shouldn’t need to question whether they are being offered the right amount for their written off car or other goods that they need to replace.

“Insurance firms should offer settlements at the fair market value. This is especially important now as people struggling with the cost of living will be hit in the pocket at precisely the time they can ill afford it.”

He warned: “We are watching the behaviour of firms closely and will act quickly to stop firms and prevent harm to consumers where we see it.”

Low-ball offers

Industry consultant Branko Bjelobaba has backed the FCA’s stance.

He told Insurance Times: “Having worked in claims during my career, we understand that vehicle values are assessed via a range of guides which will give you indicative prices for the vehicle based on age, mileage and condition.

“The past two years have seen used car values increase. Insurers should be making an offer that is in line with the market value rather than seek to low-ball the policyholder.

“It is clear the FCA do not want clients low-balled.”

He added: “Of bigger concern is the relationship that insurers have with third party suppliers.

”For instance, if you suffer an accident which is not your fault you will be provided with a courtesy vehicle that all too often is a significant cost to the insurer. If insurers are looking at the costs of claims, those third party arrangements would be a good place to start.”

Bjelobaba added: “As a policyholder you are not entitled to gain out of a claim, but you should be left in the same position you were in before the claim. Insurers need to ensure they are playing the market value for the vehicle or goods they are replacing.”

Offering a price lower than fair market value is not allowed under FCA rules – and the FCA has previously stated that it would act against those firms that it has found breaking its rules.  

In its statement, the regulator explained: “Attempts to control claims costs by making offers lower than the customer is entitled to under the policy is unfair and is likely to disproportionately affect consumers in vulnerable circumstances.”  

Gerry Ross, head of motor at Allianz, said: “The industry has to look at different ways to assess the value of a vehicle beyond past data. The values of used vehicles have changed and we have moved from a situation where they are devalued over time to one where they are currently retaining value – or in some cases increasing.

“We settle claims based on market value. It is what our customers would expect. Vehicles have continued to appreciate in value and that does pose a challenge for insurers.”