Insurers must clean up their act after it emerged they have been breaking rules by undervaluing customers’ cars when vehicles are written off, the City watchdog warned.
The Financial Conduct Authority (FCA) said it had evidence that some consumers were being shortchanged by their insurance provider as when their car was scrapped they were offered a figure below the vehicle’s “fair market value”. In some cases staff only increase offers when a consumer complains, it said, adding that it was particularly important that people were paid fairly while the country grapples with a cost of living crisis.
Offering a price lower than fair market value is not allowed under FCA rules and the watchdog said it would take action against companies it found doing this. The steps it can take include public censure and issuing financial penalties.
Sheldon Mills, the executive director of consumers and competition at the FCA, said when making a claim “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,” he said. “This is especially important now as people struggling with the cost of living will be hit in the pocket at precisely the time they can ill afford it.
“We are watching the behaviour of firms closely and will act quickly to stop firms and prevent harm to consumers where we see it.”
Fanny Snaith, a Cheltenham-based money coach, said the FCA report was not a surprise as insurers had tried to get away with the “lowest valuations possible as long as cars have been on the road”.
“But right now, with the cost of living crisis in full swing, the impact of undervaluing cars on consumers can be particularly harsh,” she said. “It’s more important than ever that people are really proactive if they have made a claim and demand that insurers explain how they have arrived at the figure they have. This is all the more the case given that the value of second hand cars has risen considerably since the pandemic.”
The FCA said firms should make sure consumers had enough information to understand the implications of the different settlement options available to them, particularly those in vulnerable circumstances.
Customers who think their claim has been undervalued can complain to their insurer and then to the Financial Ombudsman if their complaint is not resolved.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.