Motor insurers must pay fair market value for claims, says City watchdog

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 are only increasing offers when a consumer complains, it said, adding that it was particularly important that people were paid fairly as 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, executive director, consumers and competition at the FCA, said anyone making a claim should not have to worry about being offered the right amount. “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 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.

“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 secondhand 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 believe their claim has been undervalued can complain to their insurer and then take the complaint to the Financial Ombudsman if it is not resolved.