OPINION: Wheels in motion for changes that benefit insurance customers

Originally published in Insurance Post 29 October 2024. Permission to publish all opinion pieces authored by Rocio Concha, sought and granted on 5 March 2025.

Finally, the wheels of change seem to be turning in the motor insurance market. 

A new government-led taskforce, with an advisory panel including Which?, held its inaugural meeting last Wednesday. It has been set up to assess the soaring cost of premiums and, crucially, what can be done to make the sector work better for customers. 

Motorists have been dreading the time for renewal due to rising premiums. Data from the Association of British Insurers show that premiums were a fifth more expensive in the second quarter of this year compared to the same period a year ago. The average price paid for a year’s worth of cover now stands at £622 - but we know many motorists, especially younger drivers, can end up paying much more than that. 

Pricing issues are compounded by excessive rates of interest for premium finance, which effectively penalises motorists on lower incomes who pay monthly because they can’t afford to stump up the annual premium in one go. Our research has consistently shown that some home and motor insurers are charging interest rates comparable with some of the pricier credit card lenders, despite the risk to the insurer being lower because non-payment can lead to the termination of the policy. 

Encouragingly, the Financial Conduct Authority (FCA) has also announced a market study into premium finance and will report back on its findings in next year. Which? has long called on the regulator to take tough action against firms charging pay monthly customers unjustifiably high rates, so it must ensure this work brings an end to this ‘tax on being poor’. 

But unfair pricing practices are just the tip of the iceberg. Customers are also suffering when they need to make a claim. 

Earlier this year, we published an in depth report on the claims handling process and found that almost half of respondents making a claim about home, travel, motor and pet insurance experienced at least one problem in their claim journey. Customers who were in vulnerable circumstances as a result of the issue that led to their claim, such as a car crash or fire in their home, were twice as likely to report an issue. 

Problems included having to repeatedly chase insurers for information, firms not appropriately identifying and responding when claimants were struggling, and confusion when third parties got involved. The FCA has also repeatedly warned insurers not to undervalue cars that have been written off or stolen. 

Too often, customers are being forced to take their claims to the Financial Ombudsman Service - a process that can take months - just to get justice.

Car insurance isn’t a nice-to-have, but a legal necessity to be on the road. Many people need to be able to drive for work or to care for family members. That so many people are feeling let down by their insurer is unacceptable. It’s little wonder, too, that trust in the insurance sector is so low. Our latest Consumer Insight Tracker has trust in insurance at -16, lower than water companies and airlines. Since August 2020, that figure has fluctuated but remained nowhere near positive numbers.

 While the motor insurance taskforce is expected to address longer-term structural challenges in the motor insurance market, like issues with road safety and maintenance, many of the most pressing problems our research has uncovered can and should be tackled urgently by the FCA.

All financial services firms are bound by the requirements of the FCA’s Consumer Duty, and in the insurance market particularly, there are regulatory requirements and guidance that predate the Duty. This should have made the process of adapting to the Duty easier and more seamless for the insurance sector compared to others. Clearly this hasn’t been the case. 

The FCA has now opened three major reviews into everyday insurance, covering claims-handling, premium finance rates in home and motor insurance, and motor insurance business models. While these are by no means the only issues in the sector, these reviews must lead to robust action from the regulator.

The regulator must leave the sector in no doubt that unfair business practices, from charging excessive levels of monthly interest to handling customer claims poorly, are not acceptable.