The Financial Conduct Authority (FCA) stated that the recent increase in motor insurance premiums results largely from factors outside insurers’ control.
FCA expressed concerns about how some insurers handle customer claims, particularly in the home and travel sectors.
Its analysis shows that higher costs for repairing and replacing vehicles—driven by increases in car prices, spare parts, labour, energy, and more complex vehicle technology—significantly contribute to rising motor premiums.
The regulator also cited higher hire vehicle costs, more expensive theft-related claims, and a growing number of incidents involving uninsured drivers.
These findings support the conclusion that external cost inflation, rather than efforts to raise profit margins, is the primary driver of premium increases.
FCA identified certain practices within the industry that exacerbate pressures. It highlighted referral fees paid to credit hire companies and claims management firms, which are linked to slower claim processing and higher costs that ultimately harm consumers.
In its broader review, the FCA noted examples of responsible behaviour, especially in home and travel insurance, but also identified practices that could lead to poor outcomes for policyholders.
These included inadequate oversight of outsourced claims services, resulting in delays and increased complaints. Many firms lacked effective management information systems, which limited their ability to detect and resolve issues quickly.
The FCA also found that only 32% of storm damage claims submitted to a sample of insurers in 2024 resulted in a payout, raising concerns over high rejection rates.
In addition, some insurers relied too heavily on cash settlements without properly assessing if this served the customer’s best interest.
Where it identified poor practices, the FCA is taking action directly with the firms and, where necessary, using its enforcement powers.
The regulator is contributing its findings to a broader Government-led taskforce focused on reducing motor insurance costs. While the FCA recognises that this work may help manage future price increases, it warns that external cost pressures will continue to influence premiums.
Sarah Pritchard, Deputy Chief Executive of the FCA, said: “Insurance provides peace of mind, but people must be confident they can get a fair deal and be treated right when the worst happens.
External cost pressures are primarily responsible for recent motor premium increases, not higher firm profits, but there is more work to do on claims handling, particularly in home and travel.
Sarah Pritchard, Deputy Chief Executive of the FCA
“That is why we are stepping up, ensuring claims are handled promptly and fairly, and pushing for a coordinated effort to address the root causes of rising motor premiums. A well-functioning insurance market helps consumers manage their financial lives and supports growth by protecting them from financial and personal shocks,” Sarah Pritchard says.
The FCA also released an interim update from its review of the premium finance market, which allows customers to pay insurance premiums in monthly instalments.
Although this can make insurance more accessible, the FCA found that some firms earn significantly more than the actual cost of providing the service.
The regulator will examine these concerns further in the next phase of its study and address any unfair practices under its Consumer Duty framework, with a final report expected by the end of 2025.
The FCA also confirmed that its pricing reforms, which prevent “price walking” where long-standing customers are charged more than new ones, are working as intended.
Its review shows that the gap between new and renewing customers has narrowed in both motor and home insurance markets, indicating that the changes are improving pricing fairness.
