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
What factors we looked at to help consumers navigate their financial lives and support growth
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[3] 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. [4]
- A review of claims handling in home and travel insurance.[5]
- An update paper from our market study on premium finance (MS24.1) in home and motor insurance.[6]
- An evaluation of our pricing reforms in the motor and home insurance markets. [7]
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[8] 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[7] 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[4] 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[5] 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.
3.4. Impact of our prior interventions
We have evaluated[9] the impact of our previous interventions on prices in the motor and home insurance markets, which were intended to reduce price walking that penalises loyal customers.
We found:
- Our reforms were effective in reducing price-walking practices.
- Prices for existing customers remained stable in home and rose only slightly in motor, despite high inflation in recent years.
- Prices for new customers have increased in both markets to reflect risk more appropriately.
Home
We expected the price gap between existing and new customers to reduce.
We found this gap has almost halved (£95.38 to £49.17) and average prices remained stable for existing customers.
No statistically significant evidence of a causal link between our rules and price changes in the home sector.
Motor
We expected insurers to charge new customers more than existing customers as they are, on average, associated with higher risk levels.
After our reforms, we found the price for new customers rose by £111.14 in absolute terms, but the price for existing customers increased by only £22.71, despite significant inflationary pressures on motor insurance prices.
Statistically significant evidence of £1.6bn of consumer savings over a 10-year horizon as a result of our reforms in the motor market.
3.5. Cost of insurance across specific customer groups
Concerns about the cost of motor insurance for particular groups of customers were also raised as part of the Government taskforce.
Using data collected as part of these reviews, we are conducting statistical analysis to evaluate the impact on the cost of insurance for:
- Different age groups.
- Consumers living in areas with a higher proportion of minority ethnic residents.
We will publish our findings later in 2025.
4. Next steps
The tabs below set out next steps, some specific actions for others and areas for the Government taskforce to consider.
4.1. Motor claims costs analysis
Vehicle repairs
Issue
Longer lead and repair times, more expensive and complex vehicles, and the availability and cost of skilled labour.
Next steps
The Government taskforce may wish to consider:
- Potential ways to boost the supply of skilled repair labour. This could reduce repair delays and durations and labour costs.
- How the motor manufacturing industry could help to reduce lead times and supply chain pressures, thereby reducing delays and costs.
We would like to see the ABI and firms consider any further actions available to reduce the cost of repair, including where firms have in-house repair services.
Replacement vehicles
Issue
Increasing cost of courtesy vehicles.
Next steps
The Government taskforce may wish to consider what further actions or interventions may be necessary to improve the functioning of this market.
We would like to see the ABI consider approaches and processes to better manage and control the costs associated with replacement vehicles.
Theft
Issue
Increasing frequency and cost of vehicle theft, which in some cases is through readily available technologies that enable theft.
Next steps
The Government taskforce may wish to consider:
- Engaging with the motor manufacturing industry to identify ways to continue to better protect vehicles from theft.
- Looking at interventions to ensure technology used to steal vehicles cannot be sold, including via better control of online sales platforms.
- Further measures to reduce volumes of stolen vehicles believed to be shipped overseas.
- Whether increased penalties for those involved in vehicle theft may act as a stronger deterrent.
Bodily injury
Issue
Rising bodily injury claims costs due to care costs, exaggerated or fraudulent injuries, and increased use of micro-mobility.
Next steps
The Government taskforce may wish to consider:
- How best to contain increasing long-term care costs, including through tackling the factors driving those costs such as by continuing to improve road safety to further reduce the number of road collisions.
- Through engagement with relevant professional bodies including the Solicitors Regulation Authority (SRA) and the General Medical Council (GMC) whether actions to increase penalties for those engaging or assisting in claim fabrication or exaggeration, particularly for any professionals associated with this activity.
- The control and insurance of micro-mobiles, for example e-scooters, and public awareness campaigns on micro-mobility safety.
- Through engagement with the ABI and firms how best to monitor and manage bodily injury claim trends and the need for further interventions, such as introducing tariffs for other types of bodily injury or increasing the Small Claims Track threshold.
Fraud
Issue
Rising cost of motor claims fraud.
Next steps
We will continue action against social media and technology companies who have not taken sufficient action to tackle fraud on their platforms and against ‘finfluencers’ and others who are misleading customers or committing fraud.
The Government taskforce may wish to consider:
- The potential deterrence effect of higher penalties, particularly where professionals are involved, to punish those engaged in fraud related to motor insurance and to recover financial proceeds through the Proceeds of Crime Act 2002.
- How best to bring stakeholders together to enhance the ability to detect and prevent fraud. For example, industry, trade bodies, the National Crime Agency (NCA), and professional bodies such as the General Medical Council (GMC) and Solicitors Regulation Authority (SRA).
We would like to see the ABI and firms consider what additional actions the industry can take to improve fraud detection and prevention.
Uninsured drivers
Issue
Rising cost of uninsured driving claims.
Next steps
The Government taskforce may wish to consider:
- Increasing checks to identify uninsured vehicles.
- Harsher penalties for uninsured driving, including higher fines, vehicle seizure and longer driving bans.
Outsourcing
Issue
Processes not managed effectively by some insurers, and referral fees incentivise greater use of third parties.
Next steps
We will work with the ABI and firms to consider how claims can be better managed to ensure greater efficiency and cost control, without adversely affecting customer outcomes.
We want to discuss whether there is the potential for sharing best practice in relation to robust procedures to challenge unreasonable third-party claims costs.
We would like to see the ABI and firms:
- Develop a good practice code to reduce referrals to other parties and capture the management of more claims, considering how to mitigate the current incentives for first-party claimants to use accident or claims management companies (AMCs/CMCs).
- Develop good outsourcing practices to help reduce claim durations and costs.
4.2. Home and travel claims handling
Firm-specific shortcomings or harms
We will:
- Provide individual feedback to firms in our review.
- Act where we are concerned that firms are not upholding the requirements of the Consumer Duty or meeting our regulatory requirements.
Complex policy wordings (storm and wear and tear)
We expect firms to consider whether:
- Their policies meet customer needs.
- Action is needed to help consumers understand policy wordings.
Storm claims
We will ask trade bodies to act in response to our findings on storm claims by the winter to:
- Help prevent customer harms.
- Ensure good consumer outcomes under the Consumer Duty.
Use of cash settlements
We expect firms to consider whether their use of cash settlements is controlled and monitored appropriately, to meet their obligations under the Consumer Duty to deliver good outcomes.
This includes considering whether the customer is vulnerable and would benefit from insurer support and services to resolve the claim.