Consumer advocacy group Which? has raised concerns about how insurance claims are being handled by providers. Recent analysis of 8,500 Financial Ombudsman Service (FOS) decisions using AI found that 2023 had the highest levels of insurers causing distress and inconvenience in upheld insurance complaints since 2019.
General insurance products are widely held by UK consumers to protect against various mishaps in their lives. It is crucial that consumers are treated properly by their insurance providers, especially following incidents such as car crashes, home floods, or needing medical treatment while on holiday.
Consequently, the FCA’s announcement of two relevant reviews is welcomed: a multi-firm review of the insurance industry’s response to claims, particularly for vulnerable customers, and a review into the treatment of customers in vulnerable circumstances, which will report by the end of 2024.
The Consumer Duty, which came into force in July 2023, includes specific requirements for firms to support customers and improve consumer understanding, with the expectation that consumers in vulnerable circumstances should experience outcomes as good as those for other customers.
The FCA has stated that insurers should have already been meeting many parts of the Duty based on existing requirements, making it a less significant change for the insurance sector compared to other parts of the financial services sector.
Despite these requirements, findings from an online survey of 3,322 people who had made an insurance claim in the three years up to February 2024, and 24 in-depth interviews with claimants from the same period, show that insurers often fail to meet the FCA’s requirements.
The research revealed widespread evidence of significant harm caused by insurers’ claims-handling processes. Nearly half (48%) of all claimants experienced at least one problem during their claim journey.
Over one in four (28%) felt their insurer’s actions negatively impacted their available time for other activities, while 31% reported increased stress levels. Additionally, 10% experienced sleep issues, and another 10% said their physical health was negatively impacted due to their insurer’s actions.
Which? also stated that insurers are failing to consistently ensure that customers in vulnerable circumstances receive outcomes as good as those for other consumers. People severely impacted by the incident leading to their claim were more likely to encounter problems during their claims journey (63%) compared to those not severely impacted (33%).
They were also three times more likely to rate their provider as poor at considering and addressing their challenges (30% compared to 9%). Almost half (44%) of those severely impacted reported that their insurer’s actions negatively affected their mental health, compared to just 9% of those not severely impacted.
Furthermore, insurers are not providing sufficient oversight of how customers are treated when third parties are involved in assessing claims or providing remedies. Claims involving third parties were nearly twice as likely to encounter problems (60%) compared to those without third-party involvement (34%).
The FCA has made clear that firms should consider how outsourcing to third parties can impact customer outcomes and view it as a key risk that could cause consumer harm. This suggests that many insurers using third parties for claims assessment or remedies do not have sufficient systems and controls in place to oversee these partners and their impact on customer journeys.
Despite these concerning statistics and stories, there is evidence of good processes and outcomes, demonstrating that insurers can support their customers well, even in difficult circumstances. This indicates that the insurance sector can and must improve for consumers.
The group noted that the FCA already has clear regulatory requirements for insurers and has regularly reminded firms of these through guidance and communications. Instead of proposing new requirements, the focus should be on the FCA holding firms accountable to existing requirements and ensuring clear penalties for failing to meet them.
“This research paints a shocking picture of insurers' failure to handle customers claims in a timely, empathetic way - and it’s particularly concerning to see how people in vulnerable circumstances due to the event that led to their claim are being failed by their insurers,” said Which? director of Policy and Advocacy Rocio Concha (pictured above).
“At a time when many consumers face soaring premiums, it’s clear they’re being ripped off - either by abysmal claims handling that doesn’t match up to the price they’re paying, or by unjustifiably high premiums, especially for those who can’t afford to pay for a year's cover in one go.”
“Today, we say enough is enough. The rules for insurers are clear, but the insurance rip-off will not end unless the regulator takes meaningful action against firms that consistently fall short,” Concha said.
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