We have published a package of reports on how the retail insurance market is working and set out actions for us and others to address specific issues.
1. What we looked at and why
A well-functioning retail insurance market helps consumers navigate their financial lives, provides peace of mind and supports growth through the effective management of risk.
Building trust in the insurance market is essential for people to have the confidence to access and buy an appropriate level of cover.
Consumers should understand what their insurance covers, and have confidence that it provides fair value and that they’re treated fairly when making a claim.
We have published a package of reports that gives an overview of how different parts of the market are working.
On motor insurance, premiums have risen significantly in recent years and so have rightly been under significant scrutiny. Our package on motor covers our commitments as part of the Government taskforce on motor insurance, as well as wider work focusing on claims handling, premium finance and reviewing the impact of some of our previous actions.
Our reports recognise the different business models that interact and create different benefits and challenges. Through this work we have identified areas where insurers, the motor sector, Government and the regulators could work together to reduce claims costs, and so premiums, as well as some specific issues where we have concerns over certain processes or parts of the market.
On wider retail insurance, we have reviewed claims handling in home and travel insurance. We have set out where we have seen good practice and actions to address specific areas of concern. Our more significant concerns are not market wide, but will be picked up specifically with relevant firms.
The package includes:
- Analysis of the drivers behind increases in motor insurance premiums, particularly focusing on claims.
- A review of claims handling in home and travel insurance.
- An update paper from our market study on premium finance (MS24.1) in home and motor insurance.
- An evaluation of our pricing reforms in the motor and home insurance markets.
2. What we found
The cost of motor insurance has risen over the last 4 years. This has impacted consumers who have already been struggling with the increased cost of living.
We’re pleased to see motor premiums starting to stabilise, as they have fallen for the second consecutive quarter.
The rise in motor premiums between 2022 and 2024 was largely due to claims costs.
Claims costs have risen largely due to factors insurers cannot control. For example:
- 42% increase in the average value of insured cars.
- 43% increase in labour costs to repair a car.
- 79% increase in vehicle theft costs.
This shows that increased costs outside of firms’ control, rather than firm profit, were the largest cause of recent premium hikes in motor insurance.
We have presented this evidence to the Government taskforce on motor insurance.
We are calling on industry to take action to address targeted issues, and we are making recommendations for members of the Government taskforce to consider. These actions could help, but they cannot prevent all increases in costs.
We have also found evidence of shortcomings in some firms in handling claims in the home and travel insurance markets. We have seen weaknesses with firms’ oversight of claims outsourcing and use of complex policy definitions for areas such as storm or wear-and-tear cover. These put good customer outcomes at risk. We are directly addressing any poor practice in specific firms by using regulatory tools as appropriate.
The update paper from our market study on premium finance (MS24/2) indicates that, while firms face additional costs from offering monthly payment plans, in some cases providers earned much more money than it cost to provide premium finance. Although some consumers benefit from monthly payment plans with no interest, we remain concerned that some consumers who pay higher rates of interest may not be getting a fair, competitive price. We will explore these issues further in our next phase of work and will publish a final report, setting out our final findings and any proposed interventions, by the end of 2025.
While customers can benefit from shopping around or negotiating with their current providers, our evaluation of our pricing reforms indicates that loyal customers no longer face the same penalty for renewing with the same firm.
3. A closer look at what we found
3.1. Motor claims costs
Our review analysed how changes in the cost of claims affect the cost of motor insurance.
In our sample of 12 insurers, we found the biggest cause of motor insurance premium rises in recent years has been the increasing cost of claims, which increased by £2.3bn (34%) from 2019 to 2023. While costs have increased overall, the frequency of claims has dropped.
Claims costs associated with accidental vehicle and property damage accounted for 65% or almost £1.5bn of this increase. Rising costs for vehicles and repairs are driving these increases. This is caused in part by electric and hybrid vehicles being more expensive to repair, and shortages in repair labour.
We also found the following other factors impacting claims costs:
Replacement vehicles
Replacement vehicle costs accounted for 10% of the total increase in claims costs during this period, which rose from £226m in 2019 to £699m in 2023. This is partly due to factors such as:
- Electric and hybrid vehicles being more expensive to repair.
- Shortages in repair labour.
Theft
Rising vehicle costs accounted for 10% of the total increase in claims costs, as vehicle theft became more frequent and its costs increased from £235m in 2019 to £533m in 2023.
Bodily injury and fraud
Bodily injury costs accounted for 8% or £182m of the total increase in claims costs.
Long-term care costs, exaggerated or fraudulent injuries, and increased use of micromobility (such as e-bikes and e-scooters) are partially driving this increase.
Uninsured drivers
The greater prevalence of uninsured driving, which is also in part due to the use of micromobility, has driven further costs, increasing by £200m across the market as a whole.
Outsourcing
Those insurers who receive referral fees to engage third parties in the claims processes may drive increased claims costs and poorer customer outcomes due to challenges in overseeing outsourced claims handling.
Higher premiums followed the increase in claims costs which resulted in underwriting losses most firms in our sample made in 2022 and 2023. This shows that increased costs outside of firms’ control, rather than firm profit, were a significant cause of recent premium hikes in motor insurance.
3.2. Home and travel claims handling
Our review considered claims handling in the home and travel insurance markets and found examples of good practice:
Robust management information
Some firms had well-established claims governance supported by a range of robust claims management information (MI) covering customer outcomes.
Customer-centred claims handling
A small subset of firms also had more customer-centric claims handling policies and encouraged claims handlers to look for ways to pay rather than reject a claim.
However, we also saw areas for improvement that may be leading to poor customer outcomes:
Outsourcing
Some insurers could not evidence appropriate control and oversight of their outsourced claims handling arrangements.
Insufficient management information
Some firms did not have sufficient MI to identify or assess customer outcomes, including for vulnerable customers.
Clear definitions
Many insurers’ contracts (and product information) are not clear enough about how they define both wear-and-tear and storm-related cover / exclusions in home policies.
Only 32% of storm damage claims made to our sample of firms in 2024 resulted in a payment.
Cash settlement
Some firms are not doing enough to consider whether cash settlements are delivering good outcomes.
Cash settlement is where insurers pay customers the estimated cost for a repair instead of arranging it themselves in home insurance claims.
For some customers, this may be an appropriate way to settle a claim and provide more choice, whereas for others – particularly those with vulnerable characteristics – this approach could deliver poor outcomes. For example, if:
- The settlement doesn’t cover the cost of necessary repair or replacement.
- The customer may have benefited from the support and services offered by the insurer.