Some car owners may have been offered settlement values for their written-off or stolen motor that are “lower than a fair estimate of the vehicle’s market value”, a city watchdog reveals.
‘Shortcomings’ in how some motor insurance firms are valuing written-off or stolen vehicles have been identified by regulator the Financial Conduct Authority (FCA).
As part of its review of how motor firms handle car claims and valuations in these ‘total loss’ scenarios, it found some offered settlement values that were lower than guide prices.
It added that there’s also a risk that vulnerable customers are at greater risk of harm from these practices as they may have less financial knowledge or experience when challenging low offers.
The FCA said: “We consider these low average settlement figures indicate that some customers’ claims may have been handled unfairly”, which could breach rules.
Deductions made to settlement values
In a survey to 12 firms that make up an estimated 70% of the market, it found that most firms make deductions based on the pre-accident condition of the vehicle, “which we consider may be unfair in some cases”.
The FCA said firms should ensure deductions “reflect the evidence available and can be robustly justified, rather than make blanket deductions of set amounts or percentages without sufficiently considering the individual vehicle”.
It found deductions of ‘wear and tear’, which is already reflected in the guide price, and deductions for certain types of damage without an assessment of how it affects the value of specific vehicles, as well as for cleaning and paint imperfections.
Elsewhere, the regulator said most of the firms reviewed cut 20% from the settlement value if the vehicle had previously been a total loss in a category, without considering individual circumstances.
The FCA also revealed that some firms would sometimes provide initial settlement offers that are below the insured vehicle’s estimated market value or at the lower end of an identified range. This would then give them wriggle room to increase the offer if the customer challenged the original valuation or complained.
“This approach can lead to systematically different outcomes for different customers, largely based on their propensity to challenge and/or complain. We therefore consider this can be unfair.
“Where a firm knowingly makes settlement offers below the value the customer is entitled to under their policy, then this is likely to be a breach of regulatory requirements,” the FCA said. It added that claims should be handled promptly, fairly and in good faith towards customers.
It highlighted the Consumer Duty, which is in effect from summer last year, which requires regulated firms to put consumers at the heart of their business and deliver good outcomes for them.
Good practice found
The review also found areas of good practice, with some firms offering settlement values close to guide prices, using the Financial Ombudsman Service (FOS) trade guides.
None of the firms used incentives, targets or other performance management practices that would incentivise claims handlers to depress valuations.
Further, in letters sent to customers, the FCA found templates that clearly explained their settlement offers, with some including additional information relevant to the pre-accident valuation.
It also revealed that all firms reviewed allowed customers the opportunity to provide additional information relevant to the vehicle’s value, with rejections of revaluations automatically treated as complaints.
‘Right support to customers at a stressful time’
Back in December 2022, the FCA fired a warning shot to insurers not to undervalue cars or other insured items when settling claims.
Today, it said it is engaging with firms included in the review to ensure they make improvements to address the latest findings.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Having your vehicle written off or stolen can be intensely stressful, and we expect firms to offer the right support to help their customers.
“We expect all motor insurers to take note of our findings, and we are engaging directly with those that have issues that need to be addressed.”
If you think your claim may have been undervalued, complain to your insurer first, then to the FOS if it’s not resolved.
