FCA publishes findings of insurers’ valuation of vehicles review

The FCA has completed its multi-firm review of firms’ claims handling processes for valuing vehicles which have been stolen or written off (‘total loss’ claims). The findings are split into six key areas and include examples of good practice and areas for improvement.

Good practice:

• when valuing vehicles as part of total loss claims, some firms offered settlement values closely aligned to retail guide prices and all firms reviewed used trade valuation guides in line with the FOS approach;
• most firms clearly explained their settlement offers to customers and set out how they determined the vehicles pre-accident market value and the excess being deducted;
• when handling disputed valuations, the FCA was pleased that all of the firms reviewed allowed customers to provide additional information relevant to the vehicle’s value;
• where customers also rejected a revaluation, most firms automatically treated such cases as a complaint;
• most firms gave customers the chance to substitute the vehicle on their policy for the remaining term after a claim, rather than requiring them to cancel and buy a new policy.

Areas for improvement:

• when determining settlement value, firms should not make blanket deductions (eg applying a set amount or percentage) from guide prices without considering the individual vehicle;
• a firm’s first offer for the settlement price of a written-off vehicle should be its best estimate of its market value. The FCA found evidence of some firms providing a lower offer which they would then increase if the customer complained;
• firms should ensure they are not discouraging customers from disputing valuations;
• the FCA did not see sufficient oversight arrangements where firms had outsourced elements of the claims handling process to third-party providers. Firms also need to be able to demonstrate, including through MI, that any outsourcing arrangement does not lead to systemically different customer outcomes;
• 50% of the firms reviewed deducted the remaining monthly premium instalments from the settlement payment rather than allowing customers to continue to make monthly payments of the outstanding premium;
• in relation to customer outcomes monitoring under the Consumer Duty, the FCA was disappointed that most firms did not collect basic MI on total loss claims, eg the number, scale and reasons for increases to initial settlement offers but instead relied on complaints data to identify systemic issues in their claims processes.

As a general point, the FCA has reminded firms of the need to handle claims promptly and fairly, in line with their obligations under ICOBS 8.1 and the Consumer Duty. The FCA may ask firms to explain the actions they have taken in light of the review so it also expects Senior Managers to actively engage with the findings.