Home and travel claims handling arrangements: good practice and areas for improvement

Our expectations

Firms may outsource elements of their claims handling, but they cannot outsource their regulatory responsibilities.

Firms must manage any operational or conduct risks that arise from outsourced arrangements. This includes:

• Taking reasonable care to supervise the discharge of outsourced activities.
• Making sure third parties deliver good outcomes for customers that are consistent with those delivered in-house.

Areas of good practice

All insurers in the sample outsourced an element of their claims handling arrangements. This ranged from one aspect, such as first notification of loss (the first time a customer notifies their insurer of an incident or claim), to the entirety of their claims handling.

Firms’ arrangements included outsourcing through intra-group arrangements (agreements between different entities that are part of the same group of companies) and to third parties.

Encouragingly, some firms employed multiple mechanisms to support their oversight including:

• Regular quality assurance checks.
• Customer journey testing.
• Claims sample testing.
• Audits.
• Structured and recorded regular meetings.
• The receipt of granular outcomes-focused conduct MI.

Firms using a range of tools were more likely to proactively identify issues with their third parties and act.

Areas for improvement

We found 5 insurers (all of which substantially outsourced their claims handling operations) had limited control over their outsourced arrangements or material weaknesses in their oversight of their outsourced arrangements. Three of those insurers were UK branches of overseas firms and 1 provided services into the UK from an overseas location. This issue was not limited to a particular product type, as we found similar issues with firms in both the home and travel reviews.

Where there is limited control over outsourced arrangements, this raises concerns about whether these firms:

• Are complying with our outsourcing rules.
• Have arrangements that risk causing harm to their customers.

While the 18 other firms had documented oversight frameworks, the adequacy of their design and effectiveness of their operation varied.

Six out of 23 firms lacked a documented oversight framework or policy to ensure consistency in their claims oversight. Although they demonstrated some elements of oversight, we saw evidence of poor customer outcomes in these firms. This included issues that were not always proactively identified and addressed, such as:

• High upheld complaint volumes.
• Resourcing constraints.
• Long settlement time.

A few firms could demonstrate consistent, comprehensive and granular MI supported by narrative to monitor their outsourcing arrangements and customer outcomes. But generally, the MI used by firms to oversee these arrangements was inadequate.

Read more about MI

Some firms failed to consistently receive MI from third parties or lacked the full suite of data over extended periods. This meant that they didn’t have consistent and comparable data to identify actual and emerging trends. This made it difficult for firms to assess the performance of these outsourced arrangements and their impact on customers.

Five firms acknowledged these gaps and were working to improve their MI, but few provided clear action plans or timelines.

Firms that outsource claims activities to third parties should monitor:

• Ongoing customer outcomes.
• Whether their outsourcing arrangements deliver on their obligations to customers under the Consumer Duty.

We expect firms to take the necessary and appropriate steps to regularly evaluate the performance of their outsourced providers. This includes understanding customer outcomes.

A key facet in achieving this is to ensure effective and comprehensive MI. Without this, firms are unlikely to be able to identify and address any customer harm or to show how they are meeting their obligations as set out in the Consumer Duty.

Our expectations

Under the Consumer Duty, firms must act to deliver good outcomes for all retail customers, including those with characteristics of vulnerability.

We expect firms to produce and regularly review MI on the outcomes they are delivering for all customers in vulnerable circumstances.

Areas of good practice

Many firms had a broad range of MI covering both business performance and customer outcomes. This included:

• Full heads of claim data.
• Claims costs.
• Forecasts and repudiation rates.
• Complaints data.
• Tracking of customers' vulnerabilities.
• Customer service ratings.
• Results from quality assurance checks and audits.

However, the amount and quality of claims MI firms produced and reviewed varied widely, as did its frequency and how effectively it was used.

Some firms could clearly show how they used MI to manage and monitor claims handling, identify trends or issues, and make sure they could identify and mitigate potential for customer harm.

Eleven of the 23 firms in the sample could evidence the use of appropriately set tolerances (the minimum or maximum accepted limits used by firms to monitor their performance and the outcomes customers receive) that were subject to a review process. These firms could also show they assessed MI against the established tolerances, allowing them to identify areas to follow up.

Areas for improvement

Our work found shortcomings in the claims MI produced and reviewed by some firms across home and travel. The impact of these shortcomings can be far reaching, affecting firms’ governance and oversight capabilities and ultimately customer outcomes.

Some firms, particularly those who outsourced most of their claims handling activities, were often less able to clearly show how they used MI to manage and monitor claims handling, identify trends or issues, and make sure they could identify and mitigate potential for customer harm. These firms:

• Were often reactive.
• Did not have a full suite of MI.
• Could not show they shared MI with key governance and oversight forums and decision-makers in a timely manner.

This meant oversight forums and decision-makers were sometimes unable to fully oversee customer outcomes.

We saw examples of firms monitoring a limited set of metrics, which often were not produced for all the firm’s products. In some cases, firms’ MI did not include sufficient narrative to identify underlying root causes to understand what was driving harm. This meant that, having identified a potential issue, firms were unable to identify appropriate actions to address the root cause and resolve it.

We saw:

• MI provided to the Board that was limited in detail and disproportionately focused on financial performance metrics. So, it failed to identify or highlight important issues relating to customer outcomes.
• Inadequate or inconsistent use of metrics and tolerances. For example, RAG (red, amber, green) rating thresholds were sometimes set too low, providing a false sense of assurance to stakeholders.
• MI that was produced only at product level, which masked actual or emerging issues.
• Poor quality MI that was acknowledged by a firm but with no clear plans or timeline to address it.

We found shortcomings in the approaches of 12 firms to setting tolerances, including:

• Claims’ metrics where no tolerances had been put in place, leading to challenges in assessing potential harms to customers.
• Thresholds that didn’t incorporate quantitative measures, so appeared arbitrary. For example, ratings of ‘high risk’ without explaining the parameters used.
• Thresholds aligned to market or industry benchmarks without considering whether this was appropriate for the firm’s products and its policyholders.
• Relying on an individual to complete risk ratings rather than using defined tolerances, resulting in false assurance being provided to senior management.

Without clear thresholds it is difficult to understand whether these firms are operating within an acceptable risk appetite. This raises concerns about the quality of customer outcomes.

While 12 firms in our sample had sufficient vulnerable customer MI to monitor customer outcomes, the others did not. Two firms had no specific monitoring of outcomes for vulnerable customers, while 9 others had inadequate MI or said the collection of this information was still in progress. Five of the 11 firms with shortcomings were UK branches of overseas insurers and 2 provided services into the UK from an overseas location.

Where firms collected vulnerable customer MI, some also undertook complementary monitoring. For example: deep dives, quality assurance and audit reviews to support and validate their suite of MI.

We considered claims handling arrangements, storm claims and cash settlement arrangements. 

Claims handling arrangements

Our expectations

Customers making a claim have faced a loss or a potentially difficult event and may be vulnerable. We expect firms to:

• Handle insurance claims promptly and fairly.  
• Provide reasonable guidance to help a customer make a claim.
• Keep them informed during the claim.  
• Not unreasonably reject a claim.
• Settle claims promptly.

The Consumer Duty requires firms to make sure customers are adequately supported through the lifecycle of a product, including when they want to make a claim. More generally, firms must take reasonable care to establish and maintain such systems and controls as are appropriate to their businesses. 

Areas of good practice

We found that most firms in our sample had claims handling policies and frameworks that were intended to support good customer outcomes.

Eighteen of the 23 firms in our sample had a written claims strategy with objectives, principles, and measures to be taken to support these requirements. For example, where firms planned to expand in the market or develop lines of business, they committed to providing strong customer service, reducing complaints, and to ultimately align their operational changes with supporting good customer outcomes.  

Over three quarters of the firms in our sample had documented processes outlining responsibilities and steps to be taken when deciding whether to pay out a claim. They had also considered and implemented some quality assurance controls.  

In 20 of the 23 firms, we saw examples where firms had implemented measures to support claims handling and customer outcomes. This included specific guidance for claims handling staff, monitoring and recording of vulnerable customers on central systems, and regular quality assurance checks. We also saw dedicated committees such as a Vulnerable Customers Forum and a Customer Insight Forum responsible for the review of deep dives and compliance monitoring, as well as escalation to senior managers and remediation work.

Examples: good practice

Areas for improvement

While many firms in the sample treated their customers correctly, we’ve found too many examples of customers not receiving the service they’re entitled to.

Where we’ve found issues, we’re telling firms to put them right. We’ll be monitoring them to make sure they do.

Some claims strategies didn’t fully articulate the rationale for adopting specific claims handling models and how the adoption of the models aligned with and supported customers’ needs. Five firms had no clear or articulated claims strategy. Of these firms, 2 were UK branches of an overseas firms and 1 provided services into the UK from overseas.

The quality and breadth of processes varied, with larger insurers typically having wider-ranging and more comprehensive support and assurance tools.

Although 20 of the 23 firms had implemented measures to support claims handling and customer outcomes, we did not see sufficient evidence that all 20 firms were doing this consistently and effectively. We found some were failing to identify customers with vulnerable characteristics. Others, while identifying them, were then too often not flagging them on their claims systems, leaving the customer at risk of poor outcomes.

Nearly all firms in our review had frameworks to support claim handling. However, we saw evidence in some firms that these weren’t always effective, leading to poor customer outcomes.

Our value measures data returns showed that in 2022 and 2023, claims complaints as a percentage of claims increased across both products, with home complaints continuing to increase into 2024. In addition, the data provided to us by firms in our sample showed that the primary root cause for claims complaints across both products was claims service and delivery. We were concerned that this indicated that customers were receiving poorer outcomes when making a claim.

Our sample review of claims gave us insight into the key issues with how many insurers are handling claims, supporting the root cause data.

We saw issues relating to:

• Poor claims and supplier management.
• Ineffective management of customer expectations, particularly relating to timescales.
• Firms not making sure customers are kept updated on their claim’s progress.

These issues often resulted in unnecessarily long claims handling times and complaints. Over a quarter of firms upheld a high percentage of service-related complaints with some uphold rates over 70%. We often saw the most extreme examples in firms that materially outsourced claims handling activity to a third party. We also saw systemic issues relating to specific third-party claims handlers across the sample. While issues were often identified through MI, consistent with our findings under governance, firms were often too slow to address the root cause and improve customer outcomes.

We are concerned about the customer outcomes we saw across both products because of service issues. Our concerns about the impact of service failings are more pronounced for travel insurance claims. This is due to the nature of these claims, which are often made in emergency circumstances and characterised by time sensitivity, logistical complexity and increased customer vulnerability. The impact of poor service delivery can be devastating in these contexts.

Our analysis showed examples where service failings led to significant detriment such as limited support while unwell abroad, failure or delay in arranging repatriation, and unclear, incorrect and/or misleading communications that contributed to customer distress. While many firms are making efforts to improve their claims handling and oversight, we remind firms of their responsibilities under the Consumer Duty to consistently deliver good outcomes and provide appropriate support throughout the product lifecycle, including at the point of claim. We will give firms clear feedback on the required improvements. We expect firms to take prompt and meaningful action to address these issues and will monitor firms’ progress in addressing our concerns. Where firms fail to take appropriate action, we will consider the full range of regulatory tools available to us.

Storm claims

Our expectations  

Firms must support customers’ understanding by making sure their communications:

• Meet customers' information needs.
• Are likely to be understood by the intended recipients.
• Equip customers to make decisions. 

This includes providing information at the right time, in a way that is easy for customers to understand, and which allows them to make effective and informed decisions.

Under PROD 4, firms must design and test products to make sure they are compatible with the needs, characteristics and objectives of the target market.

The high level of rejected home storm claims and the lack of customer understanding of the cover provided raise concerns that these products have not been designed to meet these requirements.

In line with the Consumer Duty, we want customers to understand the information they are given to be able to make informed decisions when buying a product. Firms' monitoring should enable them to determine whether customers are equipped with the right information to make properly informed decisions. 

Areas of good practice

Four firms had proactively identified the potential for harm and conducted reviews to understand the root cause. But we saw little discussion or evidence to show other firms had done so.  

A few firms had improved their analysis of unpaid claims. Others had not done sufficient work to understand the root cause of high rejection rates, so could not show they were providing product value and delivering good customer outcomes.

Examples: good practice

Areas for improvement

The data we received showed that during 2024:

• These firms received 118,890 claims which had been classified as storm claims.
• Only 32% of customers who contacted these firms to make a storm claim received a settlement payment.
• 49% of these claims were rejected. The reasons for claims being declined included damage which the firm deemed not to be caused by the storm but instead considered to be due to wear and tear to the property and the policyholder’s failure to address this, damage less than the excess, and weather conditions not meeting the insurer’s definition of a storm.
• 19% of customers did not continue with the claim (walkaways).
• We found 5 firms who had an acceptance rate of less than 30% and 5 firms who had a walkaway rate of more than 25%.

We are concerned by the low successful claim rate.

The evidence we saw indicated that, in most cases, claims that were rejected or were not continued by the customer had valid reasons under the policy terms for not being successful. However, we are concerned that under a third of all claims classified as storm claims made to these insurers during 2024 resulted in a settlement payment. It suggests poor consumer understanding and a range of issues which need to be addressed.

We identified several key drivers of the high number of storm claims rejections and walkaways, and areas where some firms do not appear to be fully meeting their obligations and our expectations.

We set these out below.

Cash settlements

Our expectations

In our review of a sample of complex and higher value claims, we saw that a high number of firms are using either full or partial cash settlements when resolving home insurance claims.

While in some cases cash settlement may be an appropriate and effective way to settle claims, this may not result in good customer outcomes in complex and higher value claims. The use of cash settlements is also of particular concern where the customer may be vulnerable. We expect insurers to act in a customer’s best interests and there may be circumstances where a cash settlement may not be appropriate. For example, we saw a firm offer a cash settlement to a vulnerable customer after a house fire. Given their identified vulnerabilities, it is likely that this customer would have benefited from the range of tailored support and services the insurer could provide to resolve their claim.

Under the Consumer Duty, insurers need to act to deliver good customer outcomes and avoid actions that could lead to foreseeable harm. We wanted to understand firms’ approaches to offering and overseeing the use of cash settlements in a way that delivers good customer outcomes and tested this through our review.

Areas of good practice

We saw that:

• Eleven of the 15 firms had a clear and documented approach to cash settlements, and they usually outlined their approach within a best practice guide. These firms also often referred to and aligned with the approaches of industry bodies such as the ABI and the Financial Ombudsman Service.
• Some firms also incorporated detailed cash settlement guidance within their claims approach, enhancing the claims process efficiency, and used price validation tools as a benchmark to ensure fair settlements for the customer.
• Eleven of the firms appeared to appropriately consider customer outcomes when offering cash settlements. Where firms had appropriately considered customer outcomes, we saw firms tailor cash settlement decisions to the individual customer’s needs having considered the type and complexity of the claim. For example, agreeing an early cash settlement, to allow a customer to purchase another property where the circumstances of the claim resulted in a significant life event, meaning that returning to the property would be inappropriate for the customer. Additionally, some firms with a customer-centric approach focused on making sure cash settlements reflected ‘full value’ enabling the customer to source a comparative replacement.
• Most firms that had a cash settlement process could evidence that vulnerability considerations were integrated into their settlement processes. For example, where firms identified vulnerabilities or additional support needs, they worked with the customer to identify the best solution for them. This included providing more tailored communications, a detailed explanation of options, and a wider range of supplier options.
• The majority of firms could evidence that monitoring and oversight of claims’ outcomes, including cash settlements, formed part of their overall control framework. Across these firms, we saw varying combinations of controls including detailed MI, compliance monitoring, quality assurance and audit checks, monitoring of cash vs repair rates and having a detailed cash settlement process document, and training materials.
• Customers with characteristics of vulnerability should be identified and the impacts of their vulnerability considered at all stages of the product and service design process, including at claim settlement stage. We saw examples where firms:
  • Provided additional guidance to make sure a customer fully understood the implications of accepting a cash settlement.
  • Undertook additional enquiries to assess whether a customer is capable of overseeing the repairs process.

Examples: good practice

Areas for improvement

While we didn’t see a general increase in the use of cash settlements over the previous 12-month period, we identified that some firms in our review had shortcomings in their oversight and control of cash settlements.

Four of the 15 firms did not have an approach or set criteria to determine whether it was appropriate to make a cash settlement. Two of these firms actively promoted the use of cash settlements as a core part of their claim’s strategy with limited evidence to show they had considered and mitigated the potential customer impacts of this approach. For example, 1 firm encouraged the use of cash settlements based on customer preference without having any guidance in place or MI to track whether this approach resulted in good customer outcomes. There are also legal risks where cash settlement amounts reflect discounted rates from a firm’s suppliers and contractors that will not be available to customers. We were concerned that some firms may be choosing cash settlements primarily to contain costs without considering customers’ best interests.

Four of the 15 firms did not appear to consider vulnerability when making cash settlements, nor did they detail any specified circumstances when cash settlements should not be offered.

We found that 5 firms either didn’t conduct any type of monitoring of cash settlements or had limited MI. A few firms did not have staff authority limits, effectively allowing them to cash settle all types of claims up to high values. We are concerned by the absence of MI, authority limits and quality assurance checks meaning that firms cannot specifically assess the settlement of claims to deliver good customer outcomes.

Our expectations

Governance drives culture, decision-making and behaviours within firms.

Good governance is an important part of firms delivering good outcomes for customers. This includes having effective governance processes and structures that help firms identify and address issues promptly.

Our rules require that an appropriate senior management function (SMF) holder has overall responsibility for each of the activities, business areas and management functions of the firm. SMF holders are responsible for key decisions and their actions directly affect the firm’s culture and customer outcomes.

Areas of good practice

We found that 21 of the 23 firms had broadly appropriate governance structures for monitoring their claims handling arrangements, with dedicated committees meeting regularly to oversee claims performance.

Most had clearly defined committee structures and responsibilities, with 18 of the 23 firms operating claims-specific and customer-focused forums, alongside broader risk, conduct and governance committees.

Positively, most firms had appointed an SMF to be responsible for claims handling, but these responsibilities were not always reflected in their statement of responsibilities.

Areas for improvement

Firms were often less able to show how their governance arrangements were helping them oversee their claims handling arrangements effectively.

In many cases, the minutes of key claims committee meetings lacked sufficient detail to prove meaningful discussion, challenge or decision-making. This meant it was often unclear whether the firm had applied appropriate scrutiny to issues identified or taken action to resolve them.

Without appropriate insight, discussion and challenge, firms are less able to effectively oversee key decisions and actions. We saw evidence of this resulting in poor customer outcomes, including where firms had identified an issue but taken too long to address and resolve it. We are concerned that this resulted in ongoing customer harm. This included examples where firms had identified a lack of customer understanding of the cover provided but not acted to address this.

Additionally, 6 of the 23 firms in our review had intra-group claims handling arrangements. Insurers retain responsibility for these arrangements and should oversee them as if outsourcing to an external third party. We sometimes saw a lack of distinct insurer governance or oversight structures. This resulted in gaps in the insurer’s oversight of their claims handling arrangements.

It also resulted in the insurer appearing to abdicate accountability for the oversight and control of the firm’s claims function, including key claims-related decisions, and for making sure the firm delivered good customer outcomes.

For 2 firms, an SMF had not been allocated responsibility for claims handling.

In many cases, senior managers were attendees at 1 or more relevant governance forums. However, we sometimes saw a lack of active involvement from the SMF in the claims oversight process. This included an absence of records to show their engagement, decision-making and challenge contained in meeting minutes. In these cases, it was often unclear whether appropriate scrutiny had been applied or whether action had been taken. There were infrequent records to evidence senior managers’ oversight and engagement in the design and embeddedness of claims policies and procedures.

We are concerned that those with ultimate responsibility for customer outcomes for the claims process were not always engaged appropriately in ensuring the operational effectiveness of the claims function.

Without effective claims oversight and monitoring, a firm’s ability to identify, understand and address issues affecting customer claims outcomes is limited.