FCA orders £200m compensation for underpaid car-claimants as insurers overhaul practices
Financial regulator says insurers short-changed customers in write-off and theft claims; hundreds of thousands to be paid as industry updates handling rules
Insurers are set to pay about £200 million in compensation to about 270,000 motorists for historic underpayments on claims linked to written-off or stolen vehicles, the Financial Conduct Authority said on Friday. The regulator noted that roughly £129 million has already been paid to about 150,000 people, with around £71 million still owed to roughly 120,000 customers. Affected drivers will be contacted by their insurer to arrange compensation. The FCA’s review, conducted last year, found that some payouts were automatically reduced on the assumption that vehicles had pre-existing damage, a practice the watchdog said disadvantaged careful drivers and distorted the value of settlements.
Since the review, insurers have overhauled how they settle these claims to align with Consumer Duty requirements and to ensure payouts reflect the true value of the vehicle involved. The regulator said the changes aim to restore fair value for historic write-offs and theft cases and to provide greater certainty for policyholders and the market moving forward. The FCA noted that the changes have fed through into the way claims are evaluated and settled across the industry.
Analysts say a higher share of settlements are now cash-based as vehicle repairs face supply chain constraints and labor shortages, making it harder to secure like-for-like replacements. Cormac Bradley, senior actuarial director at Broadstone, said insurers need to reflect the uncertainty around car values and repair costs in settlements to avoid under-compensation amid volatile prices.
The move builds on a 2022 warning by the FCA not to undervalue vehicles when settling claims and to set out clear expectations for how insurers handle claims. The regulator and the motor insurance industry say they have reached a resolution that will enable fair, historic compensation and greater certainty for future settlements under Consumer Duty rules.
Consumers owed compensation will be contacted by their insurer, the FCA said, and there is nothing for them to do if they are already receiving offers. The payments cover historic cases, and the industry-wide changes should prevent similar under-payments in future claims.
