FCA warns insurers over undervaluing payouts

The financial regulator has warned insurance firms against undervaluing cars and other insured items when making payouts.

The Financial Conduct Authority said on Friday it had seen evidence some insurers were offering consumers whose cars had been written off at a price lower than the vehicle’s fair market value. The price was then only increased once the customer complained.

Offering a price lower than fair market value when settling claims is banned under FCA rules.

The FCA acknowledged that insurers were under “increasing pressure” on costs, as historic levels of inflation had ramped up the price of cars and parts.

But Sheldon Mills, the FCA’s executive director for consumers and competition, said: “People shouldn’t need to question whether they are being offered the right amount for their written-off car or other goods that they need to replace.

“Insurance firms should offer settlements at the fair market value.

“We are watching the behaviour of firms closely and will act quickly to stop firms and prevent harm to consumers where we see it.”

The watchdog also called on any customers concerned that their claim may have been undervalued to complain first to their insurer and then to the Financial Ombudsman if the complaint is not resolved.

It noted: “Firms can offer cash instead of repair or replacement to settle claims. However, settling claims in this way may sometimes not be in the consumer's best interest if they are not able to easily arrange repairs or replace an item themselves, or if inflation means they lose out in real terms.”

The FCA added it was already acting against the firms that it had found breaking the rules.