UK insurers face crackdown for undervaluing cars in damage claims

BRITAIN’S financial watchdog warned insurers against undervaluing cars and other items when customers submit damage claims, and said it would take unspecified action against firms that break its rules.

The Financial Conduct Authority (FCA) said on Friday (Dec 2) that it had evidence that some consumers whose cars were written off after an accident were offered sums lower than their vehicles’ fair market values.

Offering a price lower than fair market value is not allowed under the FCA rules.

Increasing business expenses pressure insurers to control the cost of claims, and one way they do so is by offering cash to settle instead of paying for vehicle repairs. In the FCA’s view, this move may not be in the best interest of customers.

Sheldon Mills, executive director for consumers and competition at the FCA, said: “Insurance firms should offer settlements at the fair market value. 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.”

The Association of British Insurers (ABI), an industry body, said that insurers have processes in place to determine the fair market value for all written-off cars.

It said: “We’ll discuss this with our members to understand how processes are kept under review, including the information provided to customers to (help them) understand the different settlement options available to them.”

The ABI added that second-hand car prices are prone to fluctuations, and that impacts settlement options.

Separately, insurance firms are also grappling with a rise in auto insurance application fraud.

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Earlier this week, insurer Aviva said it had seen a 16 per cent rise in such instances of fraud this year until October, compared with the same period last year. 

Applicants falsified information such as their ages, how long they had held their drivers’ licences, the number of penalty points they had, and their occupations, said Aviva. 

It warned motorists to think twice about lying to their insurers in an attempt to save a few pounds during the ongoing cost-of-living crisis. REUTERS