Regulatory Oversight
FCA reminds insurers of Consumer Duty obligations, publishes market studies
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July 22, 2025
The UK Financial Conduct Authority (FCA) has reminded firms of their Consumer Duty obligations to check that customers understand products, and to carry out root-cause analysis of complaints and claims, as it published a series of market studies into motor, home and travel insurance.
Matt Brewis, director of insurance at the regulator, said it was now “addressing” issues identified in its reports “directly with firms” and “where necessary” the FCA would use its “full toolkit” of powers, including enforcement.
However, Rocio Concha, director of policy and advocacy at consumer group Which?, said the time for “simply asking firms to improve has long passed”.
She added: “The FCA has uncovered significant issues with how well firms handle home and travel claims — just as it did over a decade ago. This mirrors Which? research, which found the process can be a nightmare for many consumers, particularly when insurers outsource to third parties.
“The regulator must now use its enforcement powers to force real change and send a clear signal that bad practice will not be tolerated. Only then can the insurance market start to work more fairly for consumers.”
Which? has previously said it would consider issuing a super complaint if the FCA failed to rein in bad practice in the insurance sector.
Writing on LinkedIn, James Daley, managing director at ratings company Fairer Finance, said the FCAʼs response to its own findings “showed a distinct lack of ambition” and a “missed opportunity”.
“Itʼs hard not to see this as partly being the result of the pressure that government is bringing to bear on the FCA to be gentle with industry,” he added.
Chancellor of the Exchequer Rachel Reeves has repeatedly said that “regulation has gone too far”, and called for a reduction in the “regulatory burden” on financial firms in both her Mansion House speeches.
Findings
Issues identified in the FCA reports include: inappropriate use of cash settlements; poor management information and oversight of outsourced claims handling; and a lack of clear definitions leading to a high number of claims rejections.
For example the regulator reviewed 120,000 property claims for storm damage. In the light of its findings that only one in three (32%) storm claims were paid out, it said it expected all firms to monitor and investigate the situtation.
There were multiple reasons given for the high rejection rate. In some cases, it was because fences and outhouses were not covered in policies, or that homeowners had failed to maintain their property. The FCA said the Association of British Insurers (ABI) would lead a project on increasing consumer understanding around policy requirements on home maintenance, as well as to review policy wordings.
However, it also expected insurers to flag up any exclusions in policies that had occurred intra-year when customers renewed, and pointed out that a requirement to carry out root cause analysis on spikes in rejected claims was clearly required under the Consumer Duty regime.
What the FCA considers good management information (MI)
- Full heads of claim data
- Claims costs
- Forecasts and repudiation rates
- Complaints data
- Tracking of customers’ vulnerabilities
- Customer service ratings
- Results from quality assurance checks and audits
Motor claims
The regulator cleared motor insurers of price gouging, as the surge in motor premiums in recent years was attributed to higher prices for car parts and labour, as well as energy costs and the increased complexity of modern cars.
Theft, uninsured drivers and the increase in accidents involving “micromobility” (scooters, electric bicycles and skateboards) was also cited as a reason behind the recent rise in premiums. Vehicle theft rose from £235m in 2019 to £533m in 2023, while uninsured drivers and micromobility rose by £200 million between 2022 and 2023, the FCA said.
“While we have concerns that some firms arenʼt reaching our expectations, many of the factors shaping the cost of insurance lie outside insurance control. Thatʼs why weʼre working with government, industry and other regulators to help drive down the cost of actual insurance,” said director of competition Graeme Reynolds.
Premium finance
The FCA also published its review into the cost of premium finance — what consumers who opt to pay monthly rather than annually for their insurance are charged. The regulator said 60% of consumers buying car insurance and 41% buying home insurance paid monthly because they could not afford to pay the whole amount in a single instalment.
The annual percentage interest rate charged for premium finance was 20-30%, the FCA study found, and some providers had profit margins on premium finance of 62%. The report said that some consumers were being further disadvantaged by a process known as “double-dipping” where by providers charge higher premiums to consumers who select to pay monthly.
Despite the findings, the FCA said it would not be introducing a price cap in interest that could be charged for premium finance.
“A cap on APRs may not be consistent with this range of business models, where some higher APRs may legitimately reflect costs for some consumers. On that basis, a cap may reduce the availability of premium finance and so limit access to insurance in a detrimental way. We will address APR outliers to understand why they are so different and whether any action could be required,” it said in the report.
The FCA is now speaking with individual firms to understand among other things the “value these products provide and the extent to which the prices are paid by vulnerable customers”.
It will publish a final report on premium finance by the end of the year, and an update to its 2023 strategy for the insurance sector in the autumn.