OPINION: How do we ensure the insurance market works for consumers?

Originally published in The i Paper 05 August 2025. Permission to publish all opinion pieces authored by Rocio Concha, sought and granted on 3 July 2025.

One of the quirks of insurance is that as a customer you only really find out how good your policy is when it comes to making a claim. When customers do have to make a claim - for damage to their property or disruption to their holiday, say - the experience of dealing with an insurer can often be more stressful than the original event for which they were claiming. 

It is for these reasons that the Financial Conduct Authority (FCA), the watchdog in charge of the financial services industry, has spent time looking into the issue of how firms handle claims. Their findings make for concerning reading - and in several areas mirrored Which?’s research into problems faced by insurance customers. 

The FCA identified ‘many areas’ where improvements need to be made. In particular, a quarter of the firms did not have claims handling policies and frameworks that were intended to support good customer outcomes.

Only a ‘small subset of firms’ encouraged their claims handlers to find ways to pay out rather than reject a claim. And only a third of storm damage claims made last year resulted in a payment - a stat that reflects firms failing to clearly define what constitutes a storm and the specific conditions for storm damage coverage, combined with poor communication with customers.

Just as a Which? report warned last year, customers making a claim can face a particularly difficult time when insurers outsource claims handling to third parties. 

If these industry issues were relatively recent developments, the result of adjusting to new regulatory requirements introduced by the FCA under its Consumer Duty in 2023, we may put it down to teething problems. They are anything but. The regulator looked into how well insurers handle claims back in 2014 and much of what they published over a decade ago still rings true today. 

The FCA also published an interim report into premium finance, where motor and home insurance customers pay for cover in monthly installments - often because they can’t afford to pay upfront for the year. 

I have written in these pages before about how some insurers are charging rates of interest on these monthly payments that are comparable to pricier credit card lenders, despite the risk to the insurer being much lower because non-payment can lead to the termination of the policy. 

In looking in more detail at the market, the FCA found that some firms earn much more money than it costs to provide this service. Insurers have made profit margins of up to 62%. Insurers, who provide this finance directly rather than outsourcing it, had the highest average profit margins of 53% between 2018 and 2023. 

And that’s not all. A handful of firms admitted to ‘double dipping’, in which they charge people who pay monthly higher premiums on top of their monthly finance costs, further penalising those who simply can’t afford to stump up the money for cover in one go. It is worth remembering that, in motor and home insurance, we aren’t talking about nice-to-have financial products. Car insurance is a legal requirement to be on the road and buildings insurance is often a condition of being accepted for a mortgage. 

The FCA’s findings should provide firms with plenty to chew over. Yet the regulator’s approach thus far, which is tantamount to simply hoping firms will change their ways out of the goodness of their hearts, has clearly not had the desired effect. Despite identifying several problems, the FCA’s proposed solutions are much less clear cut.

Tougher action is required. The FCA 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.