Findings of multi-firm review into insurers' valuation of vehicles

Multi-firm reviews Published: 27/03/2024 Last updated: 27/03/2024

We set out the findings from our review which assesses firms’ claims-handling processes for valuing vehicles which have been stolen or written-off (‘total-loss’ claims).

We undertook a review after seeing evidence that some consumers are being offered settlement values lower than a fair estimate of their vehicle’s market value.

Firms should consider our findings, examples of good practice and areas for improvement in the context of our rules, including the Consumer Duty, to address any shortcomings.

Our expectations of firms

Firms must handle claims promptly and fairly, in line with their obligations under ICOBS 8.1. In this context, we would expect firms’ processes for valuing vehicles to identify a fair estimate of their market value. 

The Consumer Duty came into force in July 2023 and applies to all regulated firms, including motor insurance firms. Under the Duty, firms should put consumers at the heart of their business and act to deliver good outcomes for them. 

Relevant Senior Management Function holders should carefully consider the contents of this review and take necessary steps to ensure that the firm’s processes are in line with our expectations. 

We expect firms to be able to demonstrate that they have meaningfully engaged with these topics. This includes evaluating whether they need to make changes to their own claims-handling processes to deliver good outcomes for customers. We may contact individual firms to discuss the actions they have taken. 

Who this applies to

This review is relevant to all insurance firms and third parties involved in valuing motor vehicles as part of claims handling. 

The findings from this review are also likely to interest:  

  • industry groups/trade bodies   
  • industry experts and commentators 
  • motor insurance customers 
  • insurance firms and third parties involved in valuing other insured items

What we did

We conducted a survey to get information about firms’ claims-handling processes, including valuation, for claims on vehicles that have been stolen or written-off. We also assessed firms’ oversight and controls and how far they are monitoring the outcomes of these ‘total loss’ claims.

We sent the survey to 12 firms, who together make up an estimated 70% of the market. We included a data request to help us assess how settlement amounts compared with initial guide valuations.

Our findings

We outline our findings and give examples of good practice and areas for improvement based on observations from our multi-firm work.  

While the Consumer Duty was not in force during the period we reviewed, we have commented where we saw practices that may have fallen short of these requirements.

Valuation of vehicles

When valuing vehicles as part of total loss claims, firms must ensure they align their approach with their regulatory obligations. For example, insurance firms must handle claims promptly and fairly (ICOBS 8.1.1(1)R). Further, under the Consumer Duty, one of the ways we expect firms to act to deliver good customer outcomes is by enabling and supporting customers to pursue their financial objectives through the products they offer.

Good practice  

  • Some firms offered, on average, settlement values closely aligned to retail guide prices. Our rules do not prescribe how firms should establish market value or how far they can deviate from a guide price. However, firms should be able to justify their processes and the outcomes for policyholders. This includes any deductions and the case-specific information that supports them. Where firms’ average settlement values are in line with relevant retail guide prices this is likely to indicate firms are delivering outcomes in line with our rules.
  • All the firms we reviewed used retail transacted valuation from one or more of the trade guides used by the Financial Ombudsman Service (Financial Ombudsman) to identify the indicative value of vehicles. The use of guides is consistent with the Financial Ombudsman’s published approach to assessing vehicle valuations. However, the Financial Ombudsman would compare prices in multiple guides. If there is significant difference and it thinks the firm’s valuation is unfair, the Financial Ombudsman would rely on the highest value in the guides unless it has evidence that supports a modification. Accordingly, we would not generally expect firms to rely on a single trade guide. Firms that do so should be able to demonstrate how relying on the chosen guide still allows them to handle claims fairly.
  • None of the firms we reviewed used incentives, targets or other performance management practices that would encourage claims-handling staff to depress vehicle valuations.    

Areas for improvement 

We identified several areas for improvement.  

  • Some firms reported average settlement values that were lower than the available guide prices. Our review did not examine individual cases, but we consider these low average settlement figures indicate that some customers’ claims may have been handled unfairly. We remind firms that attempts to control claims costs by making offers lower than the customer is entitled to under their policy is a breach of ICOBS 8.1.1R(1).
  • When determining settlement value, most of the firms reported making deductions based on the pre-accident condition of the vehicle, which we consider may be unfair in some cases. Firms should ensure deductions from guide prices reflect the evidence available and can be robustly justified, rather than make blanket deductions of set amounts or percentages without sufficiently considering the individual vehicle. Examples of deductions we saw that may lead to unfair customer outcomes, and so could mean that firms are not handling claims fairly, include:
    • Wear and tear – Deducting for wear and tear that would reasonably be expected for a vehicle of similar age and mileage, as this is already reflected in the guide price.  
    • Pre-existing damage – Applying standard deductions for certain types of damage without assessing how the damage affects the value of the specific vehicle, particularly for older vehicles. 
    • Retail preparations – In policies that define settlement value as the cost to replace with a like-for-like vehicle, applying deductions for cleaning or paint imperfections (eg valeting and polishing) without demonstrating legitimate and objective justification. For example, without inspecting the vehicle to assess if the issues are actually more significant than would be expected with its age or mileage.  
    • The vehicle having been a previous total loss –Vehicles can be categorised as a total loss for different reasons. While structural total losses (CAT S) are likely to have a permanent effect on the vehicle’s value even after repairing the damage, this may be less for non-structural (CAT N) total losses. Most of the firms we reviewed deducted 20% from the settlement value if the vehicle had previously been a total loss in any category, as part of their standard valuation process, with no indication of having considered individual circumstances. 
  • A firm’s first offer for the settlement price of a written-off vehicle should be its best estimate of its market value. Our review showed firms would sometimes provide initial settlement offers that are below the insured vehicle’s estimated market value or at the lower end of an identified range. Their expectation was that they would then increase the offer if the customer challenged the original one or complained, even if the customer provided no additional information. This approach can lead to systematically different outcomes for different customers, largely based on their propensity to challenge and/or complain. We therefore consider this can be unfair.

Where a firm knowingly makes settlement offers below the value the customer is entitled to under their policy then this is likely to be a breach of regulatory requirements. This includes the requirement to handle claims promptly and fairly (ICOBS 8.1.1R(1)) and to act in good faith towards retail customers (PRIN 2A.2.1R).

Further, where firms are faced with a range of market values from trade guides, it may be helpful to note the Financial Ombudsman’s published approach to assessing vehicle valuations (see above).

Under the Consumer Duty, firms should support customers in realising the benefits of their policy without unreasonable barriers. An example of a barrier could include a firm making low initial offers in anticipation of negotiation from customers. There is also a risk that vulnerable customers are at greater risk of harm from these practices, as they may have less financial knowledge or experience of dealing with financial firms to challenge their insurer’s initial settlement offer.

  • Some of the firms we reviewed said they use multiple valuation methodologies to determine claims settlement value. However, we saw little evidence that firms monitored the related consumer outcomes to ensure this did not lead to customer harm. Firms need to demonstrate how they meet the requirements under the Consumer Duty to monitor the outcomes retail customers experience from their products. Under the Duty, we expect firms to use data to proactively identify issues that may be leading to foreseeable customer harm. Accordingly, if a firm changes its valuation methodology over time, it should take active steps to monitor that this does not result in systematically poorer outcomes for customers (for example, systematically lower settlement payments).

Communicating an initial offer

Communicating the settlement offer is a vital step in the claims-handling process. It enables customers to review the offer and decide if they want to accept it or dispute it in a timely manner. So the customer must understand how the firm reached the valuation, including how it determined the vehicle’s pre-accident market value and any deduction made.

Under our rules, including the Consumer Duty, we expect firms’ communications with customers to help them make effective, timely and informed decisions, and support them in realising the benefits of their policy without unreasonable barriers (also see ICOBS 6.1.5R(1)). Firms also have a responsibility to consider their customers’ information needs, and ensure they communicate in a manner that is clear, fair and not misleading (PRIN 2A.5.3(2)R, ICOBS 2.2.2R).

Good practice  

  • We reviewed template initial offer communications from each firm. Most of the firms clearly explained their settlement offers to customers, including how they determined the vehicle’s pre-accident market value and the excess being deducted, in line with our requirement on firms to communicate with customers in a way that’s clear, fair and not misleading (PRIN 7, ICOBS 2.2.2R).
  • Most firms have communication templates that offer customers an opportunity to give additional information relevant to the vehicle’s pre-accident valuation. We consider that this is a useful way for firms to support customers during the claims-handling process, as it prompts customers to raise any concerns about the insurer’s valuation.

Areas for improvement 

  • When communicating the settlement offer to customers, firms should ensure they are not dissuading customers from challenging the valuation. For example, if the firm says its vehicle valuation approach reflects the Financial Ombudsman’s approach, there is a risk that customers may believe there is no prospect of a valuation increase even if the Financial Ombudsman subsequently assesses their case.

Handling disputed valuations

As part of the requirement to handle claims promptly and fairly (ICOBS 8.1.1R), we expect firms to have effective processes where the customer disputes their vehicle’s pre-accident valuation.

We reviewed firms’ internal procedures to understand their approach to processing disputed valuations and found a variety of approaches. Some firms give claims handlers authority to increase the offer within the range of guide prices when a customer challenges a valuation. Others repeat the initial process, checking for errors and adjusting for new information, while others perform a revaluation using a different valuation methodology.

Good practice

  • All the firms we reviewed allow customers the opportunity to provide additional information relevant to the vehicle’s value. Firms also had procedures in place to ensure they meaningfully consider any additional information from customers when revaluing the vehicle.
  • Where a firm issues a revaluation and the customers also rejects this, most firms automatically treated the case as a complaint. Second valuations are important to allow firms to consider new information or correct any mistakes in the initial valuation. However, repeating the valuation process beyond this may lead to a protracted valuation dispute process. Customers may then get tired of the process and be discouraged from challenging their settlement with the firm or taking it to the Financial Ombudsman. Firms must assess complaints fairly when handling disputed valuations as complaints. They must also take into account all relevant factors which may include relevant guidance or decisions published by the Financial Ombudsman (DISP 1.4.1R, DISP 1.4.2G(3)-(4)) and ensure they can demonstrate that they have done so.

Areas for improvement

  • Firms should ensure they are not discouraging customers from disputing valuations. A small number of firms said they used the Financial Ombudsman’s valuation approach in customer communications in disputes about valuation. While it is good practice for firms to consider and use the Financial Ombudsman’s general approach, these comments appeared to be made as a reassurance to customers about the valuation process, and there is a risk that customers may believe there is no prospect of a valuation increase even if the Financial Ombudsman subsequently assesses their case.
  • Most firms that used a more detailed or different methodology in a revaluation could not demonstrate, through MI, that this did not result in systematically different outcomes for customers. Firms should consider how best to use MI to satisfy themselves that using a different methodology at revaluation produces fair and comparable outcomes for customers that go through this process, and those who accept the original valuation.


Most of the firms we reviewed outsource at least part of their claims handling processes some of the time, such as during peak periods.

We expect firms to consider the Consumer Duty when deciding to outsource activities and assess if outsourcing claims handling processes could have a negative impact for customers, taking mitigating steps if needed.

Under our rules, firms must take reasonable care to control their affairs effectively and responsibly, with adequate risk management systems (PRIN 3). Although firms can outsource claims handling activities, they cannot outsource accountability for ensuring these meet regulatory requirements, including our requirements under the Consumer Duty. Firms should ensure they have adequate oversight over third party providers to ensure outsourced claims are handled promptly and fairly, as required by ICOBS 8.1.1(1)R, and that customer outcomes from third parties are consistent with those delivered in-house. Firms must also manage conflicts of interest fairly, both between itself and its customers (PRIN 8) and meet the rules under SYSC 3 that place additional obligations on insurers.

Areas for improvement

We identified several areas for improvement. 

  • We found that some firms did not have sufficient oversight arrangements over third-party providers. For example, one firm’s monitoring activities were limited to reviewing complaints data to detect emerging issues. Another firm relied on an annual audit of only a small sample of cases, despite outsourcing elements of claims handling for most of its total loss claims. As well as implementing appropriate system and controls, firms should also have sufficient internal expertise to effectively monitor third parties’ activities and their outcomes.
  • Firms must manage conflicts of interest fairly (PRIN 8) and ensure they can demonstrate how they have done so. Firms that outsource all or part of their claims-handling activities will need to identify potential conflicts of interest between third party providers and the firm’s customers, to be able to manage them fairly. As an example, some of the firms in our review outsource to a third party which also salvages vehicles for resale. Although the third party’s dual role has potential to give rise to a conflict of interest, not all firms showed they had taken steps to manage this fairly.
  • Where firms outsource parts of their claims processes, they should take steps to assure themselves, including through MI, that this does not lead to systematically different customer outcomes. Most of the firms we reviewed could not demonstrate this. Where firms determine settlement value through different parties, they should monitor the impact of this to ensure this does not result in significantly different outcomes for different customer groups and therefore customer harm.

Treatment of policies after a claim settlement

We reviewed firms’ internal procedures to understand how they treat motor insurance policies following a total loss claim.  

Customers whose vehicle has been written off or stolen are likely to try to buy and insure a replacement quickly. Depending on the circumstances, they may also have elements of vulnerability because of their accident.  

To support their compliance with the Consumer Duty, firms should ensure they consider the needs of their customers at every stage of the product lifecycle, including after the point of claim.

Good practice

  • We found most firms gave customers the opportunity 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. This is encouraging as it enables customers to continue to access the benefits of their policy.

Areas for improvement

  • Where a customer pays their premium monthly, half of the firms we reviewed deducted the remaining instalments from the settlement payment rather than allow customers to continue making monthly payments of the outstanding premium. While this may be in line with the policy terms, we consider that there is a risk that this approach may not deliver good outcomes for customers. Customers may not have budgeted for paying the outstanding premium in one go. This may leave customers with insufficient funds to buy a like-for-like replacement vehicle. This is exacerbated if the claim happens early in the policy.

Management Information / Data collection

Under the Consumer Duty, we expect firms to monitor and regularly review the outcomes that customers experience. If firms identify worse outcomes for any group of customers, they must take appropriate action to address this (PRIN 2A.9.12R(2)). 

Under our rules, Senior Managers must take reasonable steps to ensure the business of the firm for which they are responsible is controlled effectively, and complies with relevant requirements and standards of the regulatory system (COCON 2.2.1R – 2.2.2R). Ensuring there is timely access to appropriate MI to enable challenge and identify and investigate potential issues is an example of taking reasonable steps to discharge these responsibilities.    

Firms should also ensure that they monitor relevant guidance and decisions issued by the Financial Ombudsman on valuation processes. This will help them meet their monitoring obligations under the Consumer Duty. It will provide assurance that customers who do not complain to the Financial Ombudsman do not systematically receive worse outcomes (PRIN2A.9.10R(2)) which could indicate unfair claims handling (ICOBS 8.1R).

Areas for improvement

  • Most firms did not collect basic data on total loss claims, such as the number, scale and reasons for increases to initial settlement offers. Firms sometimes relied on complaints data to establish if there were systemic issues in claims processes.
  • Some firms did not monitor the average deviation between vehicle valuations and their corresponding guide prices.
  • Where firms use multiple valuation methodologies or outsource vehicle valuation for only some total loss claims, they could not demonstrate that appropriate MI was collected and analysed to ensure this does not result in systematically different customer outcomes.

Next steps

We are continuing to directly engage with firms included in this review to ensure that they have addressed our findings.  

We will also continue to engage with firms more generally. We expect firms to be able to demonstrate how their valuation approach and broader total loss claims- handling processes reflect the expectations we have outlined. 

We expect Senior Managers to engage in the findings of this work, and will hold them accountable for ensuring that they have considered our findings to ensure that their own processes meet our requirements. We may ask firms to explain the actions they have taken in response to this publication.