FCA finds insurers falling short – here’s what to watch for

The UK’s insurance watchdog has published a series of new reports exposing how some insurers are falling short of expected standards – highlighting poor claims handling, high rejection rates for storm damage and questionable value for customers paying monthly.

The Financial Conduct Authority (FCA) focused its assessments on home and travel insurance, as well as the costs of paying in instalments, and found several areas where customers weren’t being treated fairly.

Which? has long raised concerns about how the industry treats customers. Here's what the watchdog FCA found, and what you can do to make sure you’re not caught out.

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Claims handling criticised

The regulator reviewed claims handling arrangements in home and travel insurance. While it saw examples of good practice, it also flagged concerning evidence of poor claims handling practices. 

In its report, the FCA said: 'While many firms in the sample treated their customers correctly, we've found too many examples of customers not receiving the service they're entitled to.'

Issues included a lack of oversight or control of the claims process, where parts of it were outsourced to third-party firms, particularly among insurers based overseas.

It also noted that some home insurers were offering cash settlements to resolve claims without properly considering whether this was most suitable for the customer.

• Find out more: best home insurance providers 2025.

Only 32% of storm claims paid

The FCA also highlighted issues with home insurers rejecting high volumes of claims due to storm damage. Of the storm-related claims made in 2024 that the FCA analysed, just 32% resulted in a payout. 

It believes some of this could be down to 'weaknesses in firm definitions' – with some policies failing to clearly explain what conditions are covered.

Weather-related damage is becoming an increasing burden for both homeowners and insurers. According to the Association of British Insurers, claims costs for adverse weather totalled £226m between January and April this year, which is a record figure.

Earlier this year, Which? analysed hundreds of insurance policy documents and found that 20% included potentially unfair definitions of storms, while 32% had similar issues with flood definitions.

• Find out more: unfair definitions for floods and storms.

Premium finance fair value questioned

The FCA also published an update on its ongoing market study into 'premium finance' – the way many policyholders spread the cost of insurance by paying in monthly instalments.

According to its figures, some 48% of car and home insurance policies are brought this way – often by customers who can’t afford to pay annually, particularly those who are financially vulnerable or already facing higher premiums.

The FCA's paper suggests that some customers pay substantially more in charges, such as interest and commission, than it actually costs to provide them with premium finance. It claims that margins in made on these monthly payers can range from 14% to 62%.

It commented: 'Premium finance providers incur a material level of costs so that consumers can pay monthly. Despite this, revenues materially exceed costs for some providers.'   

Since early last year, Which? has been observing the Annual Percentage Rates (APRs) charged by insurers offering premium finance. 

In our most recent survey of 71 insurance firms, we found wide variation. Some providers allowed customers to pay by the month without any additional cost, while others charged in excess of 30% APR. 

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'It's clear the insurance market is failing consumers'

While the FCA's latest reports highlight a range of problems in the insurance market, they’re far from its first critique. The regulator has yet to set out a clear plan for how it may intervene, beyond taking action against individual firms where it finds breaches of its standards.  

Rocio Concha, Which? director of policy and advocacy, said: 'From high rejection rates and poor claims handling processes, to exorbitant levels of interest on monthly repayments, it’s clear that the insurance market is failing consumers. 

'Too many home and motor insurance customers pay for cover monthly, not through choice, but out of financial necessity. It's unacceptable that, for years, many customers have been charged excessive levels of interest on those repayments. While the regulator has today ruled out several interventions, it must now be clear about what enforcement action it will be taking.

'The FCA has uncovered significant issues with how well firms handle home and travel claims, just as it did more than 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 time for simply asking firms to improve has long passed. The regulator must now use its enforcement powers to make real change and send a clear signal that bad practice won't be tolerated. Only then can the insurance market start to work more fairly for consumers.'

Did the FCA report anything else?

The FCA also published two other insurance reports on the same day, both focused on pricing. 

The first looked at what's been driving rising car insurance costs in recent years – specifically between 2019 and 2023. During this period, the FCA’s data shows the average premium rose by 23%.

It concluded that the increase was largely due to higher claim costs faced by insurers, rather than firms profiteering. 

The loyalty penalty ban

The second report assessed the impact of the 2022 ban on the so-called ‘loyalty penalty’, which stopped insurers from offering cheaper deals to new customers while charging renewing customers more.

Before they came into force, the FCA estimated that while some customers would see price increases, the measure would result in overall savings of around £4.2bn over a 10-year period. 

However, its latest analysis suggests that the reforms appear to have led to lower prices in the car insurance market (compared with what customers would have been paying had the ban not been enacted) – but not for home insurance customers. 

It's revised its estimate of overall savings down to £1.6bn.

• Find out more: what's happening to car insurance premiums.

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Support our campaign to end rip-off insurance

After years of sustained price rises, car insurance premiums are beginning to fall. However, we believe that insurers are failing consumers in various ways, from poor claims handling to the interest fees charged for customers paying in monthly instalments. That's why we're campaigning to get the regulator to take decisive action. 

To find out how you can join more than 177,000 other policyholders in supporting our actions and increasing pressure on the industry, check our campaign page.  

• Find out more: learn more about our campaign, and sign our petition.