Regulator must show its teeth over some practices by insurers, says Which?

The City regulator is being urged by Which? to crack down on some practices by insurers.

The consumer group raised concerns that some firms could be failing to meet their obligations under the Financial Conduct Authority (FCA)’s Consumer Duty, which requires firms to focus on customer outcomes by putting themselves in customers’ shoes and pro-actively take action.

It said the impact of poor treatment from insurance firms can be devastating for consumers, many of whom have already had a traumatising experience such as a fire or flooding at their home.

A new policy report from Which? called Risky business: Consumer confusion around general insurance said: “Given low claims acceptance rates for some products, this suggests some consumers are receiving nasty shocks when their claims are rejected.”

The report said three “common misconceptions” had been identified by Which? that may lead consumers to an incorrect assumption about whether they are covered.

It said firstly, when they take out cover, “consumers have little understanding of any limitations of this cover, (for example) that travel insurance may not cover missed flight connections, or that home insurance only covers specific insured events”.

Secondly, when a situation is due to events beyond a consumer’s control, they often assume they will be covered, the report said.

And thirdly, while consumers understand that negligence and wear and tear are factors that can limit insurance cover, there is sometimes little understanding of what might constitute negligence or wear and tear, it said.

Which? is calling for the FCA’s ongoing review of insurers’ claims-handling arrangements to lead to action to address claims rejection rates for consumers with home and travel insurance.

The consumer group said research indicates that a majority of consumers (65%) believe that insurance regulations mean products must meet a minimum level of cover, and more than half (54%) believe the FCA will ensure that all insurance products provide adequate protection.

Yonder carried out research on behalf of Which? among 4,000 people across the UK in October 2024.

Rocio Concha, Which? director of policy and advocacy, said: “The FCA has the power and responsibility to step in and protect consumers. The regulator must show its teeth and start taking tough enforcement action against insurers that are failing to meet their Consumer Duty obligations, or to comply with FCA insurance rules or wider consumer law.”

The FCA has been looking into various aspects of insurance and is keeping watch on the market to help ensure consumers get what they expect.

It has reviewed how firms are supporting their customers and using communications to support informed decision-making and will publish findings in the months ahead.

In the second quarter of 2025, the FCA also aims to release findings into how swiftly the insurance industry responds to claims, including where customers are more likely to show characteristics of vulnerability.

It has also highlighted good and poor practice regarding how firms are tracking consumer outcomes and acting on insight from complaints to drive improvements under the Consumer Duty.

An FCA spokesperson said: “We expect firms to help consumers to make informed decisions to buy insurance products that meet their needs.

“We’ve have intervened directly with firms where we’ve found poor customer service and claims handling.

“Currently, we’re looking at how quickly insurers respond to claims as part of a wider evaluation of the market, with findings set to be published later this year.”

A spokesperson for the Association of British Insurers said: “Insurers appreciate how stressful making a claim can be, and their first priority will always be to support their customers.

“While the vast majority of claims are accepted and handled quickly, our members continue to work hard to meet their customers’ needs and regulatory requirements, including the Consumer Duty.

“The FCA recently published its priorities under the Consumer Duty for the remainder of 2024/25, and we will continue working closely with the regulator, members and stakeholders to explore more effective ways to improve consumer outcomes.

“As ever, it is vital to read your policy’s terms and conditions to ensure that the level of cover meets your needs, and you can speak to your insurer if you have any questions.”