FCA Overhauls Motor Insurance Payouts as £200m Compensation Heads to 270,000 Drivers

London — The Financial Conduct Authority said some insurers underpaid customers with claims for written-off or stolen vehicles, prompting a broad overhaul of settlement practices. In total, about 270,000 motorists are set to receive roughly £200 million in compensation for historic claims. The FCA said £129 million has already been paid to nearly 150,000 customers, with about £71 million still outstanding for around 120,000 claimants. Insurers have begun contacting customers who are owed compensation, and the regulator said there is nothing more for claimants to do.

An FCA review conducted last year found that some providers automatically deducted pre-existing damage from settlements, effectively undervaluing vehicles that had been well maintained. The regulator said the practice breached rules on fair handling of claims. In response, insurers overhauled their settlements to comply with Consumer Duty regulations and to ensure customers receive fair value. The changes follow an FCA warning in 2022 not to undervalue vehicles when settling claims.

Market observers note that the changes align with a broader shift toward more transparent and customer-centric claim-handling amid volatility in used-car prices and ongoing supply chain pressures for repairs.

Sarah Pritchard, deputy chief executive of the FCA, said: 'We'll step in when consumers aren't getting fair value — and we are pleased to see that the practices which led to some unfair payouts have already changed. This means thousands of motorists are getting back what their car was really worth, in cases where cars have been stolen or written off. If you're owed compensation, your insurer will contact you, or will have already done so — there's nothing you need to do.'

Cormac Bradley, senior actuarial director at Broadstone, added: 'There's also a higher number of cash settlements as vehicle repairs are hampered by supply chain pressures and labour shortages. Insurers need to be confident that they reflect the uncertainty appropriately in the customer's favour to avoid under-compensation. This is no small challenge at a time of volatile car prices so it is pleasing that the regulator and the motor insurance industry have reached a resolution which will enable fair, historic compensation and certainty moving forward.'

The FCA said the changes are designed to ensure ongoing compliance with Consumer Duty and to close gaps that allowed underpayments in the past. Customers due compensation will be contacted by their insurer, the regulator indicated, and there is nothing for claimants to do beyond waiting for the insurer to reach out.

The developments come as insurers recalibrate payment practices amid broader regulatory emphasis on fair value and transparency in motor insurance. While the FCA framed the settlement as a correction of historic mispayments, it also underscored that the remaining payments should be completed in the months ahead as firms finalize the review of affected claims. The watchdog added that it will continue to monitor the market to ensure adherence to Consumer Duty standards.

For consumers who previously received payouts that did not reflect the true value of their vehicles, the compensation represents an attempt to restore value and provide greater certainty moving forward. The FCA said the pattern of cash settlements and full-value reimbursements will be sustained as part of a broader commitment to fair treatment in insurance settlement practices across the sector.