FCA review sparks concerns over insurers’ valuation of written-off or stolen vehicles

An FCA review has found evidence to suggest some firms are offering customers less than the market value of their written-off or stolen vehicles - in some cases, providing lower offers and increasing them only when a customer negotiates or complains.

The findings suggest the FCA’s previous warnings that insurers must not undervalue vehicles or other insured items when settling claims, have not been heeded.

During the review, the regulator surveyed 12 firms making up around 70% of the market, collecting information on claims-handling processes and valuation for claims on vehicles written-off or stolen. Firms’ oversight, controls and the method and extent to which ‘total loss’ claims outcomes were monitored were also assessed.  

Sheldon Mills, FCA Executive Director, Consumers and Competition, said:

“Having your vehicle written off or stolen can be intensely stressful and [the regulator] expects firms to offer the right support to help their customers.”

Mills also stated that the regulator expects “all motor insurers to take note of [its] findings” and is engaging with firms included in the review to ensure improvements are made to address concerns raised. 

The review reiterates that when valuing vehicles as part of the claims process, firms should consider their regulatory obligation to handle claims fairly and promptly, and their requirement under the Consumer Duty to deliver good customer outcomes and enable customers to pursue their financial objectives.

The FCA recommended that Senior Managers consider the findings of the review and ensure firm processes align with its expectations. The Regulator also stressed that firms should be able to evidence meaningful engagement with the topics covered, adding it “may contact individual firms to discuss the actions they have taken”.

Firms should therefore review their processes and procedures in relation to the review findings. If you require additional assistance or advice, get in touch with UKGI Compliance: 01925 765777 info@ukgigroup.com

Findings of Multi-Firm Review 

A comprehensive break down of good practice and areas for improvement can be found in the FCA’s review findings. The key points are as follows:

Valuation of Vehicles

• Some firms reported average settlement values lower than available guide prices, indicating some claims may have been handled unfairly.
• Firms should not make deductions from settlement value based on the pre-accident condition of the vehicle (e.g. wear and tear, pre-existing damage, and retail preparations), or if the vehicle has previously been a total loss as part of their standard valuation process. Firms should be able to provide legitimate and objective justification that any issue is more significant than expected for the vehicle’s age or mileage and consider individual circumstances and evidence when making deductions.
• Some firms provided initial settlement offers below the estimated market value of a vehicle, or lower end of an identified range, and only increased the offer if a customer challenged it or complained, placing vulnerable customers who may be less able to evaluate or challenge initial settlements at risk of harm.

Communicating initial offers & Handling Disputed Valuation

• Firms must not dissuade customers from challenging or disputing a valuation; firms stating that their valuation approach reflects the Financial Ombudsman’s may lead customers to believe there is no prospect of their valuation increasing, even if the FO subsequently assesses their case.

Outsourcing

• Firms should ensure that they have sufficient oversight arrangements for third-party providers, appropriate internal expertise to effectively monitor third party activities and outcomes and implement appropriate system and controls.
• Firms outsourcing claim-handling activities must identify potential conflicts of interest between third party providers and the firm’s customers to ensure they are managed fairly.

Treatment of policies after a claim settlement

• For customers who pay monthly premiums, firms should avoid deducting the remaining instalments from the settlement instead of allowing the customers to pay the outstanding premium in monthly instalments. Even if in line with policy terms, this approach risks poor customer outcomes - especially if the claim occurs early in the policy.

Management Information / Data collection

• Firms should not rely on complaints data to detect systemic issues in claims processes.
• Firms should monitor the average deviation between vehicle valuations and their corresponding guide prices.
• Firms using multiple valuation methodologies to calculate the value of settlements, and or outsourcing vehicle valuation for total loss claims, should be able to demonstrate that appropriate MI was collected and analysed to ensure that there are not systematically different outcomes for different customers, or harm.

The Development Zone has a range of courses related to motor insurance, claims settling and complaints handling, helping employees to enhance and expand key skills and knowledge in these areas - all whilst fulfilling annual CPD requirements. Relevant courses include:

• Aviva Claims - Case Studies
• Aviva Motor Claims - Fundamental Dishonesty
• Aviva Motor Claims - Motor Casualty Claims
• Aviva Motor Claims - The Claims Journey
• Claims - Duties to a Client
• Claims Settlement Process
• Complaints Handling - FCA Regulations
• Complaints Handling

Get in touch at devzone@ukgigroup.com to find out more, or request a free 14-day trial to experience how the Development Zone can aid your firm.