Insurance Providers Warned Against Undervaluing Items

Friendly lawyer or financial advisor in suit consulting young couple

The FCA has issued a warning to insurance firms not to undervalue cars or other insured items when settling claims. Recent evidence, uncovered by the regulator, revealed that some consumers are being offered prices lower than the fair market value by their insurance providers and only having their offer increased after they have raised a complaint.

The FCA’s Executive Director for Consumers and Competition, Sheldon Mills, has commented:  

“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.”

Offering a price below the fair market value goes against FCA regulations. Mills adds: “We are watching the behaviour of firms closely and will act quickly to stop firms and prevent harm to consumers where we see it.” Any customers who suspect their claim may have been undervalued can complain to their insurer and then to the Financial Ombudsman if their complaint is not resolved.

At a time when consumers are being affected by the economical impacts of Covid-19, Brexit, and the rising cost of living, many people cannot afford to receive a payment that is below the market value. If the current global situation continues, more consumers will struggle to maintain their financial resilience, and if they are underinsured, it could further expose them to harm when the time comes to settle a claim.  

Whilst there may be increasing pressures on insurers to control claims costs, some of the methods used can be potentially harmful and are likely to disproportionately affect consumers in vulnerable circumstances.

With the implementation of the Consumer Duty in the new year, firms are expected to do more to ensure their customers are being treated fairly and to provide support for those who are struggling financially as a result of the rising cost of living.

The FCA states that firms should:  

  • provide consumers with the information they need, presented in a way that they can understand, so that they are able to confidently make informed decisions and take responsibility for those decisions
  • have adequate systems and controls around claims handling processes, including the monitoring of good outcomes for customer services
  • not incentivise staff to engage in potentially harmful claims settlement practices i.e. through bonuses or higher pay based on volume of sales or productivity metrics

RWA has launched a Consumer Duty gap analysis to help firms implement the new rules and guidance. If you would like more information about this or require any assistance in relation to the new Consumer Duty, please contact your Compliance Consultant. Alternatively, get in touch via email at helpdesk@rwagroup.co.uk or call 01604 709509.

About the author

Jessica joined RWA in 2018, having graduated with a First Class Honours degree in Film Studies. Her role as a content designer involves developing new and engaging e-learning modules as well as assisting in the creation of articles for Insight. 

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