Policy article

OPINION: FCA told to stop insurers exploiting Goldilocks-like customers

Rocio Concha, director of policy and advocacy at Which?, claims her organisation’s research suggests insurers are failing to “put themselves in their customers’ shoes” and are exploiting their Goldilocks-like approach to purchasing policies
4 min read
Rocio ConchaDirector of Policy and Advocacy, and Chief Economist

Originally published in Insurance Post 16 January 2025. Permission to publish all opinion pieces authored by Rocio Concha, sought and granted on 5 March 2025.

There are very few products consumers purchase in the hope they’ll never have to use them. Insurance, however, is one. This mindset can lead to what we might describe as the Goldilocks theory of buying insurance.

Very few of us - when buying any product or service - trawl through chunky terms and conditions documents with a fine tooth comb, parsing the legalese. In insurance, what we’re usually faced with, then, is a choice of three options. The cheapest arouses suspicion that it won’t cover you in the event you need to make a claim. (It’s the cheapest for a reason, you presume). The most expensive, by contrast, seems too expensive, too comprehensive and, besides, life-altering events like house fires happen to other people, not you. So for many it’s the middle option. Not too threadbare and not too expensive. Just right, you hope. 

The reality isn’t so neat. Which? research over the past year has consistently found that consumers are experiencing difficulties with the insurance market. Take for instance issues during the claims handling process, where some firms' actions are contributing to the worsening of an often already traumatic situation for customers just looking for justice. 

But how much of this difficulty can be traced back to the very act of taking out the policy in the first instance? And what harm might decisions made then cause later down the track?

A new report from Which? should give firms and the Financial Conduct Authority (FCA) food for thought. The process of choosing an insurance policy, we’ve found, is littered with consumer misconceptions, which may come back to bite them should they need to make a claim. We believe insurance providers and those involved in selling insurance, including comparison sites, need to do more to address these misconceptions - many of which strike at the heart of their obligations to customers under the FCA’s Consumer Duty. 

What sort of things do we mean? In our survey - and I would suspect in society at large - it’s a commonly held belief that if passengers missed their connecting flight through no fault of their own, their travel insurance policy would offer protection. The reality is that in many cases this isn’t true, which could quite easily leave consumers stranded on their holiday. As part of the Consumer Duty, firms are required to take into consideration customers’ reasonable expectations of what the product should cover. If so many people (wrongly) believe that a policy offers protection it doesn’t, it’s hard to see how it is meeting regulatory requirements.

It is little wonder, then, that claims acceptance rates in sectors such as travel and home insurance are low. While car insurance claims acceptance rates for the past year reached 99 per cent, the corresponding figure for travel insurance is 80 per cent. For standalone buildings insurance, where disputes can be more complex, the figure is 63 per cent, meaning over a third of these customers discover inadequacies in their cover or are subject to an unfair decision, making an already difficult situation worse.

Our research also found that a majority (65%) of respondents already believed that there was a minimum baseline of coverage that policies should reach, while over half (54%) believed that the regulator would ensure that insurance products provide adequate protection. Clearly, neither of these are in place. 

The Consumer Duty doesn’t remove consumers’ responsibility for their decisions. But we believe that consumers’ understanding of products depends significantly on the process they go through when buying the product. Our work shows the questions consumers are asked, and the information they are provided with on comparison sites, frames their understanding of insurance policies, and not always in an accurate way. 

The Consumer Duty asks firms to ‘put themselves in their customers’ shoes’; to constantly review their processes to ensure they’re fit for purpose. At Which?, we’re concerned that this isn’t happening. The process of buying insurance should leave customers with a realistic impression of how the product works, and what its key limitations are. Customers shouldn’t be asked questions they can’t reasonably know the answer to, without support to find the correct answer, only to find out later down the line that answers they unwittingly gave inaccurately can have a disproportionate impact on their ability to recoup any financial loss should they need to make a claim.

The FCA is undertaking work into problems during the claims handling process. We believe the regulator needs to ensure this review tackles the causes of commonly rejected claims, including any failure by firms to meet existing requirements to address poor outcomes, and meet customer needs and expectations in what they sell. Should they find wrongdoing, the regulator shouldn’t hesitate to take action.